Microsoft has confirmed plans to axe 10,000 workers as it responds to a dramatic slowdown in revenue growth and braces itself for a looming global recession.
The job cuts will affect 5 per cent of Microsoft’s total workforce of 220,000 and will cost the tech giant $1.2 billion in charges and severance payouts.
In a blog post, CEO Satya Nadella said the company would offer “full support” to all employees being laid off, providing severance pay, healthcare coverage for six months, career transition services, and 60 days' notice of termination regardless of whether it is legally required.
"I want to extend my deepest thanks and gratitude to everyone who has contributed to Microsoft up to this point and to all of you who will continue to contribute as we chart our path ahead,” Nadella said.
The announcement arrives amid a notable decline in Microsoft’s revenue since the middle of last year. The tech giant’s revenue boomed during the pandemic as remote working became normalised and heightened demand for new PCs and cloud computing services, but interest faltered as the world returned to normality.
Mr Nadella said customers had optimised their digital spending “to do more with less,” while “organisations in every industry and geography exercise caution” in the midst of a recession.
The job cuts are expected to come before Microsoft announces its revenue growth in the fiscal second quarter next week. It is estimated the giant will report growth of only two per cent to its revenue, which would be the slowest rate since 2016.
Tech Giants are Shrinking
Microsoft is just one of the many Silicon Valley behemoths forced to downsize as the current macroeconomic environment takes hold of the tech world.
Just last week, Bloomberg reported that Amazon has already begun slashing 18,000 workers in the US, Canada and Costa Rica, sending a series of emails announcing the layoffs.
“Unfortunately, your role has been eliminated,” an email from Beth Galetti, one of the e-commerce giant’s HR executives read. “You are no longer required to perform any work on Amazon's behalf effective immediately,” it added.
At the end of last year, several other tech top dogs were also forced to make cutbacks. In November, Meta announced layoffs of 11,000 staff in the first round of redundancies in the social media giant’s history.
A week prior, Twitter announced plans to cut just over 50 per cent of its workforce following Elon Musk’s takeover of the platform in October last year.
The Billionaire blamed “revenue challenges” for the cuts, citing revenue losses as high as $4 million a day upon his acquisition of the company.
Regarding Twitter’s reduction in force, unfortunately there is no choice when the company is losing over $4M/day.
Everyone exited was offered 3 months of severance, which is 50% more than legally required.
— Elon Musk (@elonmusk) November 4, 2022
America’s five largest tech companies are expected to report a dramatic fall in profits for the fourth quarter of 2022 as they attempt to recalibrate amid the post-pandemic macroeconomic headwinds.
"I would not expect good news for a while I would expect more layoffs,” Siddharth Singhai, chief investment officer at Ironhold Capital explained.
According to FactSet data, large tech companies are predicted to be among the biggest droppers in the S&P 500’s eleven sectors, with the IT sector set to report a revenue decline of 9.5 per cent.
Like Microsoft, many of these firms increased their employee base massively during the pandemic as spending on tech soared.
Big tech firms reported an average growth of 45 per cent in 2020 and 20.5 per cent in 2021, but experts believe this growth will be dramatically reversed with profits dropping.
"We are forecasting another 5% to 10% headcount cut across the tech sector as many of these companies were spending money like 1980s rockstars, Wedbush analyst Dan Ives told Reuters.
A Change of Strategy
Though Microsoft has announced job cuts in multiple departments of its company, Mr Nadella also noted that it would continue hiring in other departments as it turns its eye to AI.
He pointed to artificial intelligence giving birth to “the next major wave of computing” as an example of the ”significant change” that the company is facing amid the layoffs.
“We will align our cost structure with our revenue and where we see customer demand," the CEO added.
This month, it was revealed that the tech firm is planning to add $10 billion to its $1-billion stake in OpenAI, one of the most prominent AI developers in the world.
It is reportedly planning to implement the AI research group’s AI chatbot ChatGPT into its Bing search engine as well as many of its programmes such as Microsoft Office and Azure.
To read more about ChatGPT, visit our dedicated AI in the enterprise Page
