Microsoft laying off 10,000 employees, will cost R20 billion

Microsoft Corp. announced plans to reduce 10,000 employees, or approximately 5% of its staff, in order to deal with an increasingly grim future that has left many of the technology industry’s top brands battered.

According to a corporate filing, the business will incur a $1.2 billion (R20 billion) charge in the second fiscal quarter due to the move, which would reduce profits per share by 12 cents.

The layoffs come as the software giant says clients are being cautious, with some regions of the world in recession and others on the verge of one.

Microsoft is set to publish earnings on January 24 and is expected to show its worst sales growth in six years.

Earlier in the day, before the layoffs were revealed, Chief Executive Officer Satya Nadella stated that the IT industry is experiencing a slowdown and would need to react.

“During the pandemic there was rapid acceleration. I think we’re going to go through a phase today where there is some amount of normalization in demand,” Nadella said in an interview at the World Economic Forum in Davos, Switzerland.

“We will have to do more with less — we will have to show our own productivity gains with our own technology.”

Microsoft joins the ranks of other large technology corporations that have announced thousands of job layoffs in recent months.

Amazon.com Inc., a cloud rival and Seattle-area neighbour, is slated to begin a round of layoffs on Wednesday, impacting more than 18,000 employees in the greatest job cut in the company’s history.

Last October, Facebook parent Meta announced major job layoffs, while ailing social network Twitter Inc. eliminated over half of its workers. Salesforce, a producer of corporate cloud software, lay off around 10% of its employees earlier this month.

Based in Redmond, Washington Microsoft stated that the fee will cover severance expenses, “changes to our hardware portfolio,” and the cost of consolidating real estate leases as the business increases workspace density.

Nadella stated in a blog post and email to staff that while the business is cutting positions in some areas, it will continue to hire in “key strategic areas.”

The business did not indicate where the job losses will be concentrated, but Bloomberg previously reported that the corporation intends to remove staff in many engineering areas.

According to the corporation, the job losses will be completed by the conclusion of Microsoft’s fiscal third quarter.

Microsoft is likely to disclose profits on January 24 and estimate a 2% increase in second-quarter sales. That would be the worst quarterly sales growth since fiscal year 2017. In the last decade, Microsoft’s cloud-computing solutions have powered a revival in growth, but even that industry has begun to slow.

Analysts predicted that Microsoft, which has weathered previous slowdowns without huge layoffs, would feel the pain this year. Guggenheim Securities lowered the business to sell from neutral on Tuesday, the first downbeat analyst recommendation on the software manufacturer in more than three years.

According to Guggenheim analyst John DiFucci, Microsoft’s exposure to small and medium-sized enterprises, as well as growth worries for the company’s Windows operating system and Azure cloud-computing operations, is a danger in an economic slowdown.

UBS downgraded the company to neutral earlier this month, citing worries over the cloud computing segment.

On Wednesday morning in New York, shares were slightly changed at $240.92.

Microsoft will begin contacting some of the sacked employees immediately, with others following in the coming months.

Employees in the United States who get benefits will be given “above-market severance pay, continuing healthcare coverage for six months, continued vesting of stock awards for six months, career transition services, and 60 days’ notice prior to termination,” Nadella stated in a blog post in an email to employees. Microsoft will follow local regulations outside of the United States.

Microsoft did not provide specifics on the adjustments to its real estate portfolio, but the Puget Sound Business Journal reported last week that the firm will let the lease on one of its Bellevue, Washington, buildings expire.

Microsoft, which also owns professional network LinkedIn, search engine Bing, and the Xbox video-game company, is undergoing a large campus redevelopment that was announced in 2017 with the goal of adding additional space for employees and creating more open work areas.

Microsoft intended to replace some of its older structures with bigger structures. The Covid-19 epidemic and a policy change allowing staff to work from home up to 50% of the time without special permission had already thrown a wrench in the works.

While it is tightening its belt in certain areas, Microsoft is betting heavily on artificial intelligence to drive its next wave of development.

The business intends to embed AI-based capabilities into its Azure cloud services, office worker apps, and software programming tools, some developed in-house and others through a partnership with developer OpenAI.

It is also pushing hard to attract more users to Azure and cloud-based Office productivity packages, such as Teams conferencing software, which produce recurring income streams.

Microsoft is also attempting to market additional artificial intelligence applications for doctors and radiologists, less than a year after completing its acquisition of Nuance Communications. It is also attempting to obtain regulatory permission for a $69 billion deal to acquire Activision Blizzard Inc., which would represent a significant expansion of its game business.