Microsoft to Lay Off 10,000 Workers as It Looks to Trim Costs

Microsoft to Lay Off 10,000 Workers as It Looks to Trim Costs

Microsoft on Wednesday became the latest addition to a growing list of big technology companies that have announced plans to lay off employees because of overhiring during the pandemic and worries about the economy.

The company will lay off 10,000 workers, Satya Nadella, Microsoft’s chief executive, said, as it looks to trim costs amid economic uncertainty and to refocus on priorities such as artificial intelligence.

Microsoft employed about 221,000 workers as of the end of June, and the cuts amount to less than 5 percent of its global work force.

With the cuts, Microsoft joined a string of other tech giants that have pulled back after several years of frenetic hiring to meet the pandemic-fueled surge in online services and the expansion of cloud computing. The technology industry grew more rapidly than it had in decades, rivaling the expansion of the dot-com boom in the 1990s.

Microsoft and its peers responded to surging customer demand by essentially hoarding technical staff. But the market slowed last year as workers started to return to their offices, inflation squeezed budgets and consumers sought entertainment outside their homes.

“The reality is you can adjust hiring very quickly, and that is what is going on,” said Brad Reback, an analyst at the investment bank Stifel. “I don’t think this is symptomatic of a bigger issue.”

The industry’s deceleration has been particularly hard on smaller tech firms, and companies that specialized in newer concepts like crypto have been significantly affected. But tech’s giants have not been spared. Among the industry’s big companies, Google’s parent company, Alphabet, and Apple are the only firms yet to announce significant layoffs.

Speaking at the World Economic Forum annual meeting in Davos, Switzerland, on Wednesday, Mr. Nadella said that after rapid acceleration during the pandemic, “quite frankly we in the tech industry will also have to get efficient.” He added that the industry “will have to show our own productivity gains” using its own technology.

Still, some of the tech industry’s biggest companies continue to measure their profits in the tens of billions of dollars. In the quarter ending in September, Microsoft had $50 billion in sales that produced $17.6 billion in profit. It has also continued to return money to investors through quarterly dividends and a $60 billion share buyback program authorized by its board of directors in 2021.

The company’s annual revenue grew 58 percent over three years, during which time it hired more than 75,000 people. But rising interest rates and the prospect of a recession have tempered Microsoft’s outlook. In the latest quarter, it reported its slowest growth in five years and warned that more tepid results could follow.

Microsoft’s stock price closed down nearly 2 percent on Wednesday and is down about 22 percent in the past year, which is better than many of its tech peers. The company is scheduled to report its next quarterly earnings on Tuesday.

Microsoft is going forward with several expensive bets, including potentially putting another $10 billion into its investment in OpenAI, which makes the explosively popular ChatGPT artificial intelligence system, and a $69 billion acquisition of the video game maker Activision that is facing challenges globally by antitrust regulators.

Mr. Nadella said in a message to staff that the layoffs “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.”

The layoffs, which began on Wednesday and will continue through March, are the company’s largest in roughly eight years. Mr. Nadella cut about 25,000 jobs over the course of 2014 and 2015 as Microsoft abandoned its ill-fated acquisition of the mobile phone maker Nokia.

Despite the high-profile layoffs from some of the biggest names in tech — Microsoft, Amazon, Meta and others — the broader labor market remains generally strong. Cooling wage growth has provided some investors optimism that it will relieve pressure on the Federal Reserve to keep raising interest rates, but hiring has slowed only slightly.

The skills of engineers and other technical talent are still in high demand. Those who are laid off will likely find roles directly in industries like banking, retail or health care, which are undergoing the digitization of their operations, rather than at big tech firms themselves, labor analysts and recruiters say.

Customers are seeking “to do more with less,” Mr. Nadella wrote to employees. “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,” he added.

The changes, including severance and other restructuring expenses, will cost $1.2 billion, Mr. Nadella said. In a regulatory filing, Microsoft said some of the costs would come from consolidating office leases, as well as “changes to our hardware portfolio.”

Microsoft makes the Surface line of laptops and tablets, and demand for personal computers has fallen sharply from the pandemic highs, when companies and families purchased laptops to work and study from home. In October, Amy Hood, the company’s finance chief, told investors that the slowdown in consumer PC sales that started in September would continue through at least June.

Mr. Nadella said the company would continue to hire in strategic areas, and called advances in artificial intelligence “the next major wave of computing.”

Other tech giants have also been reducing costs. Amazon began what is expected to be a huge round of layoffs on Wednesday, as part of its plans to cut its corporate work force by about 18,000 jobs.

“The exit out of Covid this past year was challenging,” Doug Herrington, who heads Amazon’s retail and operations business, wrote Wednesday morning in a message to staff obtained by The New York Times.

He added that although the company had trimmed expenses, “we’ve determined that we need to take further steps to improve our cost structure so we can keep investing in the customer experience that attracts customers to Amazon and grows our business.”

Mr. Herrington wrote that the company would continue to invest in areas including health care and grocery.

The business software company Salesforce said this month that it planned to lay off 10 percent of its work force, or about 8,000 employees, and Meta, the parent company of Facebook, announced at the end of last year that it was cutting more than 11,000 jobs.