Microsoft is cutting 10,000 jobs as it cited a post-pandemic shift in digital spending patterns and weakness in the global economy.
The tech group joined a list of U.S. peers who have seen massive job cuts, including Facebook owner Meta, Amazon and enterprise software maker Salesforce, who have scaled back due to workforce expansion fueled by a pandemic-related boom in the demand for their services and products that have lost momentum.
Microsoft CEO Satya Nadella said in a blog post that customers had increased their digital spending when the coronavirus hit in 2020-21, but were now scaling back.
“We’re now seeing them optimize their digital spend to do more with less,” he said.
Nadella added that organizations in every industry and region worldwide are exercising caution “as some parts of the world are in recession and other parts are anticipating a recession.”
Nadella also pointed to artificial intelligence creating the “next big wave of computing” as an example of the “significant change” the company is facing. Microsoft is an investor in OpenAI, the company behind the ChatGPT chatbot.
“We will align our cost structure with our revenue and where we see customer demand. Today we are making changes that will result in a reduction of our total workforce by 10,000 jobs.”
Microsoft employs approximately 220,000 people worldwide, with the cuts representing less than 5% of its total workforce.
The layoffs, to be implemented by the end of March, will result in a $1.2bn (£1bn) charge in the second quarter of the fiscal year, Microsoft said.
It follows some cuts last year. Microsoft said last July that a small number of positions had been eliminated, and in October news site UKTN reported that the company had laid off fewer than 1,000 employees across several divisions.
Microsoft is grappling with a slump in the PC market after a pandemic boom fizzled out, reducing demand for Windows and associated software. Declining demand has also affected Microsoft’s cloud computing division, which is now the company’s largest past.
The company also owns the Xbox gaming platform and is seeking to buy video game maker Activision Blizzard, whose titles include Call of Duty and World of Warcraft, in a $68.7 billion deal. However, the US Federal Trade Commission has decided to block the transaction for competition reasons.
One analyst said Microsoft and other U.S. technology companies were battling a “category five near-term economic storm.”
Dan Ives, an analyst at US financial services firm Wedbush Securities, said: “We are seeing the clock strike midnight for the tech sector after a decade of hypergrowth and now major layoffs at [Microsoft]Salesforce, Meta, Amazon and many others [Silicon] Valley. Now is the time to take the band-aid off to preserve margins and cut costs.”
Overzealous hiring during the pandemic has become a hallmark of many tech companies’ job cut announcements in recent months. Amazon’s workforce had doubled to 1.5 million since March 2020, and this month the company said it would cut 18,000 of those positions.
The online retailer’s CEO Andrew Jassy referred to “the uncertain economy” when announcing the cuts, but added that Amazon had “hired people quickly in recent years”.
According to Bloomberg, Amazon began implementing the mass job cuts on Wednesday, contacting workers in the US, Canada and Costa Rica via email. Bloomberg added that affected workers in China will be contacted after the Lunar New Year, while in other regions the company will need to consult with worker representatives before starting any layoffs.
Mark Zuckerberg, the CEO of Meta, the parent company of Facebook and Instagram, announced 11,000 layoffs in November after admitting that an increase in online activity during the pandemic “didn’t go as I expected.”
Salesforce’s CEO, Marc Benioff, said this month as he cut about 8,000 jobs that “we’ve hired too many people leading to this economic downturn we’re going through right now.”
Joshua White, an assistant professor of finance at Vanderbilt University, said company documents showed the company had expanded its workforce by about 50% from pre-pandemic levels.
“Such rapid expansion has been based on competition to attract technical talent that drives value at companies like Microsoft, [Google owner] Alphabet and Meta,” he said.
“All of these tech companies have rapidly expanded their workforces over the past two years, anticipating continued growth during the pandemic period, fueled in part by government stimulus.”