Add Microsoft to the growing list of technology companies laying off workers as the economy tightens and the ramped-up hiring during the peaks of the coronavirus pandemic no longer proves sustainable.
Microsoft today said it would cut approximately 10,000 employees through the end of its third quarter that ends March 31, with notifications beginning today. The layoffs represent less than 5% of Microsoft’s total workforce, CEO Satya Nadella said in an email to employees made public through a blog post today.
A Microsoft spokesperson declined to provide more details on the layoffs, including what types of positions will be affected and where, and whether they’ll impact Microsoft Azure, Microsoft’s cloud computing division that ranks second in size after Amazon Web Services (AWS).
Microsoft also will make unspecified changes to its hardware portfolio and consolidate its retail leases to “create higher density across our workspaces,” according to Nadella. Combined with the severance costs tied to layoffs, the changes will result in a $1.2 billion second-quarter charge for Microsoft. The company is scheduled to report those second-quarter financial results on Jan. 24.
“We’re living through times of significant change, and as I meet with customers and partners, a few things are clear,” Nadella said in the email to employees. “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. 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.”
Microsoft will align its cost structure with its revenue and where it sees customer demand, according to Nadella.
As of June 30, 2022, Microsoft had approximately 221,000 full-time workers: 122,000 in the United States and 99,000 internationally, according to a July regulatory filing with the U.S. Securities and Exchange Commission, its latest annual report.
Of those employees, 85,000 were operations workers in manufacturing, distribution, product support and consulting services, 73,000 were in product research and development, 47,000 worked in sales and marketing, and 16,000 were in general corporate and administration roles.
In its last earnings release in October, Microsoft reported healthy growth in its cloud division, despite the effects of a strengthening U.S. dollar in terms of foreign exchange rates and a challenging macroeconomic environment.
Microsoft Cloud revenue – which includes sales of Microsoft Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365 and other commercial cloud properties – exceeded $25 billion for the second straight quarter at $25.7 billion, 24% growth from the prior-year period.
But revenue growth from Microsoft Azure and other cloud services slowed to 35%, a drop from the 50% growth reported in the prior-year quarter and 40% growth in the previous quarter.
Microsoft’s total headcount grew by 22% year-over-year in that quarter, which included approximately six points from its acquisitions of Nuance and Xandr.
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