Microsoft flagship store in London.
Image: Alex Yeung/Adobe Stock

Microsoft on Wednesday said it will lay off 10,000 employees to reduce costs during uncertain economic times. CEO Satya Nadella said the cuts represent less than 5% of the company’s total workforce; he also said Microsoft will focus on AI as a strategic priority.

“As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less,’’ Nadella told staff. “We’re also seeing organizations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one.”

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The layoffs, the company’s largest in several years, will continue into March. Microsoft had about 221,000 workers as of June 2022 before laying off around 200 workers in August. The company cut about 25,000 jobs during 2014 and 2015 after it bought and then sold Nokia after an ill-fated attempt to develop a Windows Phone as a third alternative to iPhone and Android.

Job cuts follow platforms realignments

“These are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn’t adapt to platform shifts,’’ Nadella said.

Microsoft will align its cost structure with its revenue and customer demand, he continued.

The company is reportedly planning to invest $10 billion to add OpenAI’s ChatGPT to its Azure service. Microsoft was an early backer of OpenAI.

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Microsoft will make changes that include paying out severance and restructuring expenses at a cost of $1.2 billion, Nadella said. Some of the costs will come from the consolidation of office leases, as well as “changes to our hardware portfolio,” he said.

Layoffs are a concerning trend in a recession

With Microsoft’s planned reductions, there are now 19,150 job cuts announced by companies in the tech sector from Jan. 1, 2023 to Jan. 18, 2023, according to global outplacement and executive and business coaching firm Challenger, Gray & Christmas, Inc.

“The tech sector is undergoing significant changes as a result of recession fears,” said Andrew Challenger, labor expert and senior vice president of Challenger, Gray & Christmas. “Like with other more established sectors, tech is maturing, and that typically leads to workforce reductions as companies shift focus. With the softening economy, those cuts become even more necessary and, in some cases, larger.”

Challenger continued by noting that these cuts haven’t been seen since the dot-com bust in the early 2000s. The 97,171 tech job cuts in 2022 were the highest for the sector since 2002, when 131,294 cuts were announced, according to the firm. The highest total occurred in 2001 when 168,395 tech-sector cuts were announced. Since November, tech companies have announced 88,114 job cuts, according to the firm.

Tech companies are bracing against the slowdown

Earlier this month, Nadella expressed concern about the growth of the tech sector, saying it should be prepared for two more bumpy years.

Also this month, Salesforce announced plans to reduce its workforce by 10% — roughly 7,000 employees — as well as close some of its offices. Amazon has said it will cut 18,000 jobs starting next week, which is about 6% of the company’s 300,000 total workforce. Other tech companies that have laid off staff include Meta, Cisco and Twitter.

Tech companies have announced 88,114 job cuts since November, including those from Meta, Amazon and Twitter, Challenger, Gray & Christmas reported. This month’s partial total is the second-highest monthly total for the sector since September 2015, when 32,500 cuts were announced on a major restructuring from Hewlett-Packard. The highest monthly total on record occurred in November 2022 when 52,771 job cuts were announced in tech, the firm said.

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