JAKARTA - Microsoft Corp on Wednesday January 18 said it would eliminate 10,000 jobs or layoffs of employees to save them $1.2 billion from their income. This had to be done because their cloud-computing customers were thought to be reconsidering their spending and the company was preparing to deal with a potential recession.
These layoffs add to the tens of thousands of layoffs announced in recent months across the technology sector. The growth of tech companies has now fallen, having gone through a period of strong growth during the pandemic.
The news comes even as the software maker prepares to increase spending on the creative-generative intelligence the tech industry today sees as a new bright spot.
In a note to employees, Microsoft CEO Satya Nadella is trying to address different views on different parts of business.
"Currently, customers want to optimize their digital spending to do more with fewer (outages) and be careful because some parts of the world are in recession and other parts are anticipating it," Nadella said.
"At the same time, the next big computing wave was born with the advancement of AI," added Nadella.
Nadella said layoffs, affecting less than 5% of Microsoft's workforce, would end in late March, and an announcement began last Wednesday. However, Microsoft will continue to recruit new employees in "strategic areas," he said.
The AI (artificial intelligence) sector is likely to be one of these areas. Nadella this week touted AI to world leaders gathered in Davos, Switzerland. He claims that the technology will change its products and touch people around the world.
Microsoft has considered adding $1 billion to its stock on OpenAI, the startup behind the sensation of Silicon Valley chatbot known as ChatGPT, which Microsoft plans to market soon through its cloud service.
Shares from the company based in Redmond, Washington ended 2% lower last Wednesday.
The announcement is in line with the start of layoffs (PHK) at rival retail and cloud-computing Amazon.com Inc, which began notifying employees last Wednesday of layoffs of 18,000 employees.
In an internal memo seen by Reuters, Amazon said that affected workers in the United States, Canada and Costa Rica would be notified by the end of the day. Meanwhile employees in China will be notified after the Chinese New Year.
Facebook parent Meta Platforms Inc has also announced a reduction of 11,000 jobs, while cloud Salesforce Inc.-based software company also said it would cut 10% of its 80,000 workforce.
According to outlet Challenger company Gray & Christmas, overall, in 2022, more than 97,000 layoffs were announced. This is the highest for the sector since 2002, when 131,000 layoffs were announced.
"We haven't seen this activity since the destruction of dot-com," said Andrew Challenger, senior vice president of the company.
Microsoft dismissed 878 full-time workers at its head office in Redmond, according to an update on Washington State's Worker Adjustment and Retraining Notification (WARN) page.
Under US law, most employers are required to report staff cuts affecting 50 workers or more at one location.
Microsoft's billion-dollar bill will cut a profit of 12 cents per share in the company's second fiscal quarter of this year, and could correspond outside the tech sector, several analysts said.
"This is one of the marquee's growth companies with a very different user base that says that maybe economic conditions are not as good as we thought," said Brian Frank, portfolio manager at Frank Funds who has owned and shut down Microsoft's shares over the past few years.
The allegations were caused by severance pay and adjustments to Microsoft's hardware lineup and rental consolidation to build a higher-density workspace, Nadella said.
Microsoft declined to specify hardware changes or say whether to stop developing any product lines.
Microsoft's cloud revenue surged in recent years from the company's burst demand to host data online and deal with computing on so-called cloud. But cloud growth slowed to 35% in the first fiscal quarter of 2023, and the company projected more cooling to come. In July last year, it said a small number of roles had been removed.
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