Microsoft is cutting 10,000 workers, nearly 5% of its workforce, joining other tech companies that have scaled back their pandemic-era expansions.
The company said in a regulatory filing Wednesday that the layoffs were a response to “broad economic conditions and changing customer priorities.”
The Redmond, Washington-based software company said it will make changes to its hardware portfolio and consolidate its leased office space.
Microsoft is cutting far fewer jobs than it added during the Covid-19 pandemic as it has more people working and studying from home due to a boom in demand for its workplace software and cloud computing services.
“A lot of it is overwork in hiring,” said Joshua White, a finance professor at Vanderbilt University.
Microsoft’s workforce has expanded by about 36% in the two fiscal years following the outbreak of the pandemic, 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 workforce, with some announcements taking place today,” CEO Satya Nadella said in an email to employees.
“While we will eliminate 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” using advances in artificial intelligence.
Customers who accelerated their spending on digital technology during the pandemic are now “trying to optimize their digital spending to do more with less,” he said.
“We are seeing companies in every industry and geographies acting cautiously as some parts of the world are in recession while other parts are anticipating one,” Nadella wrote.
Other tech companies are also cutting jobs Amid concerns about an economic slowdown.
Amazon and business software maker Salesforce announced major job cuts earlier this month as they trim wages that have expanded rapidly during the pandemic lockdown.
Amazon has announced that it will cut about 18,000 positions. The layoffs are the largest in the Seattle-based company’s history, though only a fraction of its 1.5 million global workforce.
Facebook parent company Meta is laying off 11,000 people, about 13% of its workforce. And Elon Musk, the new Twitter CEO, has cut the company’s workforce.
Nadella, who attended the World Economic Forum’s annual meeting in Davos, Switzerland this week, did not directly address the layoffs on Wednesday.
When asked by the forum’s founder Klaus Schwab what technology layoffs mean for the industry’s business model, Nadella said companies that thrived during the COVID-19 pandemic are now “normalizing” that demand.
“Quite obviously, we should also be proficient in the technical field, right?” Nadella said. “It’s not about everybody doing less. We have to do less. So we have to show our own productivity gains through our own technology.
Microsoft did not immediately respond to questions about where the layoffs and office closings would be concentrated. As of June, there were 122,000 workers in the United States and 99,000 elsewhere.
White, the Vanderbilt professor, said all industries want to cut costs ahead of a potential recession, but tech companies may be particularly sensitive to a rapid rise in interest rates, which has been aggressively used by the Federal Reserve in recent months. The fight against inflation.
“It hits tech companies a little harder than industrials or consumer goods because most of Microsoft’s value is in projects that have cash flows that can’t be paid out for years,” he said.
Among projects that have gained attention recently are Microsoft’s investment in its San Francisco startup partner OpenAI, the writing tool ChatGPT, and other AI systems that can generate readable text, images, and computer code.
Microsoft, which owns the Xbox game business, faces regulatory uncertainty in the U.S. and Europe over its planned $68.7 billion acquisition of video game giant Activision Blizzard, which until a year ago had about 9,800 employees.
AP business writer Kelvin Chan contributed to this story from London.