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 from profits as its cloud computing customers reassess their expenses and that the company prepares for a possible recession. .
The layoffs add to the tens of thousands announced in recent months in the tech sector, which has demoted after a strong period of growth during the pandemic.
The news comes just as the software maker is poised to increase spending on generative artificial intelligence that the industry sees as the new bright spot.
In a memo to employees, CEO Satya Nadella tried to address the differing perspectives from different parts of the business.
Customers wanted to “optimize their digital spend to do more with less” and “be cautious as some parts of the world are in recession and others are anticipating one,” he said. “At the same time, the next great wave of computing is being born with advances in AI.”
Nadella said the layoffs, affecting less than 5% of Microsoft’s workforce, would end at the end of March, with notifications beginning Wednesday.
However, Microsoft would continue to hire in “strategic areas”, he said. AI is probably one of those areas. Nadella this week pitched AI to world leaders gathered in Davos, Switzerland, saying the technology would transform its products and affect people around the world.
Microsoft has considered increasing 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, Wash.-based company fell about 1%.
The announcement matches the start of layoffs at retail and cloud computing rival Amazon.com Inc (AMZN.O) which began notifying employees on Wednesday of its own job cuts of 18,000 people.
In an internal memo seen by Reuters, Amazon said affected workers in the United States, 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 company 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 employees.
In total, in 2022, more than 97,000 tech job cuts were announced, the highest in the industry since 2002, when 131,000 cuts were announced, according to outplacement firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dot-com collapse,” said Andrew Challenger, the company’s senior vice president.
The company is laying off 878 full-time workers at its Redmond headquarters, according to an update to Washington state’s Worker Adjustment and Retraining Notification (WARN) page. Under US law, most employers are required to report staff reductions affecting 50 or more workers at one site.
CLOUD GROWTH DOWN
Microsoft’s billion-dollar charge will slash earnings by 12 cents per share in Microsoft’s second fiscal quarter this year, and could resonate beyond the tech sector, some analysts said.
“Here is one of the big name growth companies with a very distinct user base that says economic conditions may not be as good as we thought,” said Brian Frank, portfolio manager at Frank Funds. , who has owned Microsoft stock from time to time. during the last years.
The charge is attributable to severance packages as well as adjustments to Microsoft’s hardware lineup and consolidation of leases to build higher-density workspaces, Nadella said.
Microsoft declined to detail hardware changes or say whether it would stop developing a product line.
Microsoft’s cloud revenue has skyrocketed in recent years due to an explosion in business demand to house data online and manage computing in the so-called cloud. But growth fell to 35% in the first fiscal quarter of 2023, and the company expects more declines to come. In July last year, he said a small number of roles had been eliminated.
Reporting by Jeffrey Dastin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; additional reporting by David Randall in New York; Editing by David Gaffen, Shinjini Ganguli and Nick Zieminski
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