Microsoft said on Wednesday it will cut 10,000 jobs by March 31 as the software maker anticipates slower revenue. The company will take in $1.2 billion in its second fiscal year, resulting in negative earnings of 12 cents per share.
Alphabet , Amazon and Salesforce are among the technology companies that have cut jobs in recent weeks. The decline comes as demand for cloud computing and collaboration services increases as businesses, government agencies, and schools encourage remote work to reduce exposure to COVID.
Rising prices have made companies more cautious about technology spending, dimming the otherwise OcOctobris the monthttober, itk for technology stocks that have outperformed other market sectors year after year. Now Microsoft and its colleagues are assessing the situation. In July, Microsoft announced it would cut less than 1 percent of its workforce, and in October confirmed further cuts that reportedly affected fewer than 1,000 workers.
“I am confident that Microsoft will come out of this stronger and more competitive,” CEO Satya Nadella said in a memo to employees posted on Microsoft’s website. The move will reduce Microsoft’s workforce by less than 5 percent, and some employees will learn this week if they will lose their jobs, he wrote.
Shares of Microsoft were slightly higher at the US open after the announcement.
Workforce adaptation affects all teams and geographies, and sales and marketing are affected more than design, a company spokesperson told CNBC in an interview. Nadella wrote that the american workers who are eligible for benefits will receive a larger-than-market severance payment, six months of health and stock bonuses, and 60 days’ notice.
Nadella reiterated the business environment trends described in recent months.
“Just as we saw customers increase their digital spending during the pandemic, we are now seeing how they are optimizing their digital spending to do more with less,” he wrote. “We also see organizations across all industries and geographies being cautious as some parts of the world are in recession while others are waiting for it.”
Earlier this month, Nadella announced that the company may have to make changes.
“As a global company, I don’t think we’re immune to what’s going on in the macro,” he told CNBC-TV18.”We also need to focus our operations to ensure that our costs match our revenue growth.”
Microsoft called for revenue growth of 2 percent for the fiscal second quarter, which would be the slowest pace since 2016.
The layoffs aren’t a huge surprise given the decline in sales of Microsoft’s cloud infrastructure and Windows operating systems in recent quarters. Gil Luria, an analyst at DA Davidson who has a buy rating on Microsoft shares,
Investors are concerned about many technology companies’ margins, including Microsoft, he told CNBC.
“I think that all these companies, especially those that have hired more over the last two or three years, are expected to adapt and respond to the slower growth environment, show investment discipline, and focus on shareholder value. “I have to feel it now when they try to drive out of a slower-growing economy,” Luria said.
The cut could save Microsoft about $2.5 billion over the next 12 months, or 1
cents per share when the charge is included, Evercore ISI analysts, who have a buy rating on Microsoft shares, wrote in a note to clients.
Big layoffs aren’t an annual exercise for 47-year-old Microsoft, but they do happen from time to time. In 2017, Microsoft laid off thousands of employees in a major reorganization of its sales force. In 2014,Microsoft cut 18,000 jobs after buying Nokia’s device and services businesses. The cut announced by Microsoft on Wednesday is the largest since the layoffs at Nokia, a spokeswoman said.
The fee is related to severance benefits, changes to the company’s hardware mix, and leasing costs, Nadella wrote, noting that Microsoft targets people and money in growth areas and sells as it does in other categories.
“Each of us and every team across the company must raise the bar and outperform the competition to deliver meaningful innovation that can truly benefit customers, communities, and countries,” Nadella wrote. “If we achieve this, we will grow stronger and prosper long into the future; it’s that simple.”