Microsoft will cut 10,000 jobs, which will lead to an increase in tech workers

DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp ( MSFT.O ) said on Wednesday it would cut 10,000 jobs and take a $1.2 billion charge in earnings as it reassessed spending on cloud computing customers and the company braced for a potential recession. .

The layoffs add to tens of thousands announced in recent months in the tech sector, which has been shrinking after a period of strong growth during the pandemic.

The news comes as the software maker prepares to increase its spending on generative artificial intelligence, which the industry sees as a new bright spot.

In a memo to employees, CEO Satya Nadella tried to convey a different outlook for different parts of the business.

Clients wanted to “optimize their digital spending to do more with less” and “be cautious as some parts of the world are in recession and other parts are waiting for a recession.” “At the same time, the next great wave of computing is being born with advances in artificial intelligence.”

Nadella said the layoffs, which affect less than 5% of Microsoft’s workforce, will end by the end of March, with notices beginning Wednesday.

However, Microsoft said it will continue to work in “strategic areas”. Artificial intelligence is likely to be one of those fields. Nadella spoke to world leaders gathered in Davos, Switzerland this week about artificial intelligence, arguing that the technology will transform products and touch people around the world.

Microsoft has looked to add to its $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to bring to market soon through its cloud service.

Shares of the Redmond, Washington-based company fell about 1%.

The announcement coincides with the start of layoffs at retail and cloud computing rival Inc ( AMZN.O ).

In an internal memo seen by Reuters, Amazon said affected workers in the US, Canada and Costa Rica would be notified by the end of the day. Employees in China will be notified after the Chinese New Year.

Along with Amazon, Facebook parent Meta Platforms Inc ( META.O ) said it would cut 11,000 jobs, while cloud-based software company Salesforce Inc ( CRM.N ) said it would cut 10% of its 80,000-strong workforce.

In total, more than 97,000 tech job cuts were announced in 2022, the most for the sector since 2002, when 131,000 layoffs were announced.

“We haven’t seen this activity since the dot-com bust,” said Andrew Challenger, the company’s senior vice president.

According to an update on the Washington State Worker Adjustment and Retraining Notice (WARN) page, the company is laying off 878 full-time employees at its Redmond headquarters. Under US law, most employers must report layoffs affecting 50 or more employees at one location.

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Microsoft’s billion-dollar charge will reduce earnings by 12 cents in the second fiscal quarter of this year and could resonate outside the technology sector, according to some analysts.

“Here’s one of those growth companies with a very different user base that says economic conditions aren’t as good as we thought,” said Brian Frank, a portfolio manager at Frank Funds, which owns shares of Microsoft. over the past few years.

Nadella said the payment covers severance costs, as well as adjustments to Microsoft’s hardware lineup and lease consolidation to create higher-density jobs.

Microsoft declined to detail the hardware changes or say whether it would stop developing any product lines.

Microsoft’s cloud revenues have grown in recent years due to an explosion in corporate demand for hosting data online and managing computing in the so-called cloud. But growth fell to 35% in the first fiscal quarter of 2023, and the company predicts further declines. In July last year, he announced that a small number of roles had been eliminated.

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Reporting by Jeffrey Dustin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; Additional reporting by David Randall in New York; Edited by David Gaffen, Shinjini Ganguli, and Nick Zieminski

Our standards: Thomson Reuters Trust Principles.

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