January 19, 2023
Employees at Microsoft this week learned a harsh lesson from CEO Satya Nadella about the fickle nature of the tech industry.
The software giant on Wednesday announced plans to axe 10,000 jobs this year, almost 5% of its workforce, as customers rein in their spending on digital transformation following the pandemic. In an SEC filing, Microsoft said customers in some parts of the world are also battening down the hatches in anticipation of a recession.
“As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimise their digital spend to do more with less,” said CEO Satya Nadella, in a statement. “We’re also seeing organisations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one.”
As a result, Microsoft needs to slim down.
“These 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,” said Nadella, in a statement.
The redundancies are unfortunate but not wholly unexpected.
Revenue at Microsoft’s Azure cloud business grew less than analysts were expecting during the three months to 30 September, and was down compared to the previous quarter. During the results call, CFO Amy Hood warned that Azure’s revenue would fall by 5% sequentially during the final three months of 2022, implying that it expected cloud spending would continue to fall. Its next quarterly report is due out on 24 January.
Microsoft’s tech sector peers are also feeling the pinch. Facebook parent Meta in November announced 11,000 redundancies, around 13 percent of its workforce. CEO Mark Zuckerberg took responsibility, admitting that he believed that the shift in consumer behaviour to doing everything from home and online – precipitated by the pandemic – was the new normal. However, once people were allowed outside again, they fell more or less back into the ‘old’ way of doing things, leaving Internet companies like Meta high and dry.
That same month, Amazon announced that it would cut 10,000 jobs, mostly at its Devices and Services unit. Similarly to Meta, Amazon’s Devices and Services arm did well during the pandemic, as consumers spent their holiday money on gadgets to make life under lockdown more bearable. That general appetite for expensive new toys has waned since then.
Microsoft said the redundancies will be made throughout the course of this year; some of the affected staff have already received their notice. Microsoft expects to record a $1.2 billion charge in Q2 related to severance costs, changes to its hardware portfolio, and the cost of scaling down some of its workspaces.
“These decisions are difficult, but necessary,” Nadella said. “They are especially difficult because they impact people and people’s lives – our colleagues and friends. We are committed to ensuring all those whose roles are eliminated have our full support during these transitions.”
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