Microsoft has become the latest large tech company to reverse a pandemic-era recruitment spree in the face of a slowing economy, as it announced plans to shed 10,000 workers by the end of March, or nearly 5 per cent of its staff.
The cuts extend the sharp correction that has swept through the tech sector in recent weeks as the historic boom in digital demand caused by Covid-19 has faded.
Microsoft added 40,000 workers in its latest financial year, more than double the year before, after chief executive Satya Nadella predicted that customers would continue to spend heavily on technology despite rising inflation and economic stresses.
Nadella sounded a more cautious note in a memo to staff on Wednesday, saying: “As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimise their digital spend to do more with less.” He also said that customers across the board had become more cautious “as some parts of the world are in a recession and other parts are anticipating one”.
Despite making its first company-wide job cuts in years, the move was less swingeing than reductions at some of Microsoft’s biggest rivals. Earlier this month, Amazon announced plans to cut 18,000 jobs, while software rival Salesforce, which had almost 80,000 employees at the end of October, said it would shed 10 per cent of its staff. Facebook and WhatsApp parent Meta said late last year that it would cut about 13 per cent of its workforce.
“Most in tech are cutting 10 per cent — Microsoft cut 5 per cent, causing more concerns around the potential need for further cuts down the road,” said Brent Thill, an analyst at Jefferies. “Most consider 5 per cent turning out the underperformers, which they should be doing every year anyway.”
The job cuts come amid a sharp slowdown in Microsoft’s revenue growth since the middle of last year. Microsoft’s revenue surged 18 per cent in its latest financial year, to the end of June, as an explosion in remote working and other changes caused by the pandemic boosted demand for new PCs and cloud computing services. Microsoft is expected to report growth of only 2 per cent when it announces earnings next week.
Despite the cuts, Nadella said Microsoft would keep recruiting, and signalled another big wave of investment as the software giant tries to take the lead in a new wave of technology based on the latest advances in artificial intelligence. The tech industry “is unforgiving to anyone who doesn’t adapt to platform shifts”, Nadella said to staff. “The next major wave of computing is being born with advances in AI.”
Microsoft has been in talks to invest $10bn in OpenAI, one of the most prominent AI research groups. Speaking at the World Economic Forum in Davos on Wednesday, Nadella predicted that the latest AI would be “revolutionary” and have as big an impact in the tech world as the emergence of smartphones and cloud computing more than 15 years ago. Microsoft executives have said that they expect to eventually use the technology in all the company’s products and services.
In an official filing, Microsoft said the cost-cutting moves would include “changes to our hardware portfolio, and lease consolidation to create higher density across our workspaces”. The actions are expected to result in a $1.2bn charge for its second fiscal quarter, which ended in December, or a 12-cent hit to its earnings per share, the company said.
Additional reporting by Ian Johnston in London
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