Dive Brief:
- Microsoft plans to lay off 10,000 employees through the end of March in an effort to align cost structure with revenue and customer demand, the company said Wednesday. Microsoft expects to incur $1.2 billion in costs related to severance payments, changes to hardware portfolio and lease consolidation during Q2.
- The cuts represent less than 5% of the company’s total employee base, and the company will continue to hire in “key strategic areas,” according to the announcement. In an email, Microsoft declined to indicate those strategic areas.
- “First, 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,” Satya Nadella, CEO at Microsoft, said in the announcement.
Dive Insight:
The layoff announcement comes less than a week before Microsoft is expected to deliver its Q2 earnings report. Its stock price was down 20% year-over-year at market close Tuesday. This dip, combined with economic pressures as well as an increased focus on AI, likely pushed the company in the direction of layoffs, according to John Annand, principal advisory director at Info-Tech Research Group.
Like many tech companies, Microsoft expanded its ranks during the pandemic to meet demand as more businesses relied on technology to support operations. Demand has since slowed, pushing tech companies to rethink long-term plans.
More than 1,000 tech companies, including Meta, Salesforce and Microsoft, laid off over 150,000 employees in 2022, according to Layoffs.fyi.
The employment squeeze began in 2022 as businesses grew more cautious of a slowing economy and began to roll back previous hiring sprees.
In the first 18 days of the new year, more than 100 tech companies laid off over 26,000 workers, according to Layoffs.fyi.
On Jan. 5, Amazon announced it was laying off more than 18,000 workers, primarily in its Amazon Stores and People, Experience and Technology divisions. Cost restructuring and long-term opportunities were driving factors for the change, according to Amazon.
AI is Microsoft's path forward, according to Annand.
From its Copilot service in GitHub to recent announcements teasing the addition of ChatGPT into Azure OpenAI Service, the company is doubling down on AI-powered projects.
