News

Microsoft To Cut 10,000 Jobs Citing Recessionary Pressures

• By Kurt Mackie
• 01/18/2023

Microsoft on Wednesday announced a coming workforce reduction by 10,000 jobs, representing a "less than five percent" cut of its total employee count.

The job cuts will happen through the end of Microsoft's fiscal third quarter, namely, the end of calendar-year March 2024. However, Microsoft has started issuing layoff notices as of today.

The announcement, described as an internal communication from Satya Nadella, Microsoft's CEO, indicated that Microsoft is still hiring in "key strategic areas" as it realigns its business efforts to address customer demand. Nadella indicated that Microsoft is getting affected by a global economic recession, which has already occurred in some parts of the world, but is anticipated in others.

One possible strategic area for Microsoft is artificial intelligence (AI), which was touted in Nadella's memo as bringing in "a new computing platform." Perhaps coincidentally, Microsoft this week announced the commercial launch of Azure OpenAI, providing access to natural language AI models to improve search, chat and other functions. Microsoft reportedly may invest further billions in its partnership with OpenAI, an AI general intelligence research and development company.

Nadella didn't specifically say where Microsoft's workforce reductions would take place. However, Microsoft is planning to incur a $1.2 billion charge in its fiscal Q2 regarding employee severance costs, plus "changes to our hardware portfolio, and the cost of lease consolidation." That statement suggests Microsoft will make reductions in its rented properties and maybe alter its Microsoft Surface PC product line or other hardware products.

Microsoft often rehires its laid-off employees for its other operations, although Nadella didn't mention that aspect in his memo. Microsoft's layoffs ironically are arriving shortly after it permitted its employees to take "Discretionary Time Off" (or "unlimited paid time off"), which means they can take time off that's not accrued, which was reported this month by ZDNet.

Microsoft's last revenue report for fiscal Q1 was mostly positive, although its net income was down 14 percent, year over year. The Q1 results specifically mentioned a Windows OEM revenue decrease of 15%, although "Windows Commercial products and cloud services revenue" showed an 8% increase on the personal computing side. Microsoft Chief Financial Officer Amy Hood had suggested that Windows installs on new PCs was expected to continue to decline through June 2023.

Microsoft's Q1 results had indicated a 24% increase in cloud revenue year over year. However, competitor Google reportedly estimated Azure cloud revenue as having an "operating loss of almost $3 billion," at the end of Microsoft's 2022 fiscal year. Google's assessment was part of a purportedly leaked document, as described by CNBC.

Microsoft's job cuts come after other big tech layoffs got publicized, with Amazon laying off 18,000-plus workers, Salesforce cutting 8,000 jobs and Twitter halving its 7,500 head count after an acquisition last year by Tesla head Elon Musk and his financial partners. These tech job cuts don't necessarily signal a recession as they represent a drop in the bucket relative to typical overall job cuts that occur every month, argued economist Dean Baker, in a recent Los Angeles Times editorial.

Baker indicated that "close to 1.4 million workers are fired or laid off from their jobs in an average month." While tech employees are "likely to be re-employed more quickly than people in other sectors," that scenario could change if the U.S. Federal Reserve's interest rate policies should push the country into another recession, Baker argued.