Microsoft is shedding 10,000 employees, nearly 5% of its workforce, and joins other tech companies that have scaled back expansion in the pandemic era.
The company said in a regulatory filing filed on Wednesday that the layoffs were in response to “macroeconomic conditions and changing customer priorities.”
The Redmond, Wash.-based software giant said it would also make changes to its hardware portfolio and consolidate its leased office space.
Microsoft is cutting far fewer jobs than it created during the COVID-19 pandemic as it responded to a boom in demand for its workplace software and cloud computing services with so many people working and learning from home.
“A lot of that is just hype in hiring,” said Joshua White, finance professor at Vanderbilt University.
Microsoft’s workforce grew about 36% in the two fiscal years following the onset of the pandemic, growing from 163,000 workers at the end of June 2020 to 221,000 in June 2022.
The layoffs represent “less than 5 percent of our total employee base, with some notifications coming today,” CEO Satya Nadella said in an email to employees.
“While we are trimming roles in some areas, we will continue to hire in key strategic areas,” Nadella said. He stressed the importance of building a “new computing platform” that leverages advances in artificial intelligence.
He said customers who had accelerated their digital technology spend during the pandemic are now looking to “optimize their digital spend to do more with less.”
“We are also seeing companies across all industries and geographies exercising caution as some parts of the world are in recession and other parts are anticipating a recession,” Nadella wrote.
Other tech companies have also cut jobs amid concerns about an economic slowdown.
Amazon and enterprise software maker Salesforce announced significant job cuts earlier this month as they slash payrolls, which have been growing rapidly during the pandemic lockdown.
Amazon announced that it would cut around 18,000 jobs. It’s the largest layoff in the Seattle company’s history, though it’s a fraction of its 1.5 million global workforce.
Facebook parent company Meta is laying off 11,000 employees, about 13% of its workforce. And Elon Musk, Twitter’s new CEO, has cut the company’s workforce.
Nadella didn’t directly mention the layoffs on Wednesday when he appeared at the annual meeting of the World Economic Forum taking place this week in Davos, Switzerland.
Asked by forum founder Klaus Schwab what tech layoffs mean for the industry’s business model, Nadella said companies that boomed during the COVID-19 pandemic are now seeing a “normalization” of that demand.
“Honestly, we need to be more efficient in tech too, right?” Nadella said. “It’s not about everyone else doing more with less. We must do more with less. So we have to show our own productivity gains with our own brand of technology.”
Microsoft didn’t immediately respond to questions about where the layoffs and office closures would be concentrated. In June it had 122,000 workers in the US and 99,000 elsewhere.
White, the Vanderbilt professor, said all industries are trying to cut costs ahead of a possible recession, but tech companies could be particularly sensitive to the rapid rise in interest rates, a tool used aggressively by the Federal Reserve in recent months was fighting inflation.
“This is hitting tech companies a little harder than industrials or consumer staples because a large part of Microsoft’s value is in projects with cash flows that won’t pay off over a number of years,” he said.
Projects that have garnered attention recently include Microsoft’s investment in its San Francisco-based startup partner OpenAI, maker of the ChatGPT writing tool and other AI systems that can generate readable text, images, and computer code.
Microsoft, which owns the Xbox games business, is also facing regulatory uncertainty in the US and Europe as it delays its proposed $68.7 billion acquisition of video game company Activision Blizzard, which employed about 9,800 people a year ago .
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AP business writer Kelvin Chan contributed to this story from London.