Microsoft cuts 10,000 jobs ahead of ‘tough times’

CEO Satya Nadella told staff companies are moving to ‘exercise caution’ amid a global slowdown, also highlighting the sector’s preparation for tougher times in his speech at Davos.

Microsoft chief executive Satya Nadella has told the World Economic Forum in Davos the tech sector must prepare for ‘tougher times’. Picture: Tobias Schwarz/AFP

Microsoft is laying off 10,000 employees, becoming the latest technology giant to announce an additional round of cuts amid concerns about the health of the global economy.

Chief executive Satya Nadella said in a blog post to employees overnight that the lay-offs would happen before the end of March and affect less than 5 per cent of the company’s global workforce.

The last time Microsoft laid off that many people was in 2014 when 18,000 employees lost their jobs as the company pulled out of cell phones and other non-core businesses.

Mr Nadella pointed to the economic slowdown in his note, telling employees that companies globally had begun to “exercise caution as some parts of the world are in a recession and other parts are anticipating one”.

He added that the company would be taking a $US1.2bn charge related to severance costs in its earnings, due next week.

In his note to employees, Mr Nadella didn’t specify which parts of the company would be hit by the cuts. He said the company would be pulling back in some areas but continuing to hire in key strategic areas.

The Xbox game maker also culled jobs last year. Picture: Patrick T Fallon/AFP

Last year, Microsoft had more than one round of lay-offs but didn’t announce how many positions it cut. One round, which started in July, affected less than 1 per cent of the company’s total workforce of more than 200,000 people, the company said at the time.

The tech sector had been on a years-long hiring spree as companies invested in expansion and competed for talent by offering lucrative pay packages.

As Covid-19 set in, the pace of hiring accelerated as the companies rode a wave of supercharged demand.

Microsoft was among the tech companies that ramped up hiring in recent years. The company reported 221,000 employees at the end of its fiscal year through June. That was up 22 per cent from the previous year.

Some tech companies have in recent months pivoted to slashing thousands of positions as the business climate has deteriorated on the back of economic slowdown concerns, high inflation rates, rising interest rates and other factors.

Tech employers cut more than 150,000 jobs in 2022, estimates Layoffs.fyi, a website that tracks the events as they surface in media reports and company releases.

This month, business software provider Salesforce said it planned to lay off 8000 employees, or 10 per cent of its global workforce – the biggest headcount reduction in the company’s history.

Amazon.com recently said that it was laying off 18,000 people. The e-commerce leader began to notify the employees affected this week according to an internal staff memo viewed by The Wall Street Journal.

The memo said the company plans to notify those in the US and Canada by the end of the day.

Microsoft’s move comes the week before it is scheduled to announce its latest quarterly earnings. Late last year, the company said a sharp decline in personal computer sales and the US dollar’s strength were weighing on expansion.

In the three months through September, its revenue grew 11 per cent from a year earlier, its weakest increase in more than five years.

A number of tech jobs were cut in 2022 and major employers like Amazon and Salesforce have already started 2023 with more warnings. Picture: Patrick T Fallon/AFP

The issue of declining PC sales that has been squeezing Microsoft’s Windows business looks to be around for some time.

Worldwide shipments were down 29 per cent in the fourth quarter last year compared with the previous year, according to preliminary data from research firm Gartner Inc. Analysts don’t expect that trend to improve until 2024.

Microsoft shares slid around 1 per cent in overnight trading – slipping around 20 per cent over the past 12 months, broadly in line with the tech-heavy Nasdaq Composite Index.

Speaking at the World Economic Forum in Davos, Switzerland, before announcing the lay-offs, Mr Nadella said the tech industry has to prepare for tougher times.

“We in the tech industry will have to get more efficient – it’s not about everyone else doing more with less, we will have to do more with less. We will have to show our own productivity gains,” he said.

The lion’s share of Microsoft’s business is selling software and cloud services to corporations. That enterprise business hasn’t so far been hit as hard as the businesses which depend on e-commerce and selling advertising.

Microsoft has been enjoying some positive news this year, as it negotiates increasing its investment in artificial intelligence start-up OpenAI. This week the company announced it was opening up access to OpenAI tools such as image generator Dall-E 2 and the technology behind ChatGPT, which can answer questions and write essays and poems.

In his note Wednesday, Mr. Nadella specifically mentioned AI as a priority, calling it “the next major wave of computing.”

– Sebastian Herrera contributed to this article.

– The Wall Street Journal