Microsoft is cutting 10,000 jobs, nearly 5% of its workforce, joining other tech companies that have scaled back expansions since the pandemic.
The company said in a regulatory filing Wednesday that the layoffs were a response to “macroeconomic conditions and changing customer priorities.”
The Redmond, Washington-based software giant said it will also make changes to its hardware portfolio and consolidate its leased office space.
Microsoft is cutting far fewer jobs than it had added during the Covid-19 pandemic as it responded to a boom in demand for its workplace software and cloud services with so many people working and studying from home.
“A lot of this is just overconfidence in hiring,” said Joshua White, an economics professor at Vanderbilt University.
Microsoft’s workforce grew by about 36% in the two fiscal years following the onset of the pandemic, from 163,000 employees at the end of June 2020 to 221,000 in June 2022.
The layoffs represent “less than 5 percent of our total employee base, with some announcements occurring today,” CEO Satya Nadella said in an email to employees.
“While we are eliminating roles in some areas, we will continue to hire in key strategic areas,” Nadella said. He emphasized the importance of building a “new computing platform” using advances in artificial intelligence.
He said clients who accelerated their digital technology spending during the pandemic are now trying to “optimize their digital spending to do more with less.”
“We also see organizations across all industries and geographies exercising caution as some parts of the world are in a recession and other parts are expecting one,” Nadella wrote.
Other tech companies have also trimmed jobs amid fears of an economic downturn.
Amazon and business software maker Salesforce announced big cuts earlier this month as they trimmed payrolls that expanded rapidly during the pandemic.
Amazon said it will cut about 18,000 positions and began notifying affected employees Wednesday in the United States, Canada and Costa Rica, with other regions to follow, according to emails from executives. The cuts, which began in November, are the largest layoffs in the Seattle company’s history, though they are just a fraction of its 1.5 million global workforce.
Also on Wednesday, British cybersecurity company Sophos confirmed it had laid off 10% of its global workforce – 450 employees – on Tuesday. Sophos, known for threat intelligence and detection, was acquired in 2020 by private equity firm Thoma Bravo for $3.9 billion.
Facebook parent Meta is laying off 11,000 people, about 13% of its workforce. And Elon Musk, the new Twitter CEO, has cut the company’s workforce.
Nadella made no direct mention of the layoffs Wednesday when he appeared at the World Economic Forum’s annual meeting held this week in Davos, Switzerland.
Asked by forum founder Klaus Schwab what tech layoffs meant for the industry’s business model, Nadella said companies that thrived during the COVID-19 pandemic are now seeing “normalization” of that demand.
“Honestly, in the tech industry we have to become efficient too, don’t we?” Nadella said. “It’s not about everybody else doing more with less. We have to do more with less. So we have to show our own productivity gains with our own kind of technology.”
Microsoft declined to answer questions about where the layoffs and office closings would be concentrated. The company sent a notice to Washington state employment officials on Wednesday that it was cutting 878 workers at its offices in Redmond and the nearby cities of Bellevue and Issaquah.
In June, it had 122,000 workers in the United States and 99,000 elsewhere.
White, the Vanderbilt professor, said all industries want to cut costs ahead of a possible recession, but technology companies may be particularly sensitive to the rapid rise in interest rates, a tool that has been used aggressively in recent months by the Federal Reserve in its fight against inflation.
“This hits tech companies a little harder than it does industrials or consumer goods because a lot of Microsoft’s value is on projects with cash flows that won’t pay off for years,” he said.
Among the projects that have gained attention recently is Microsoft’s investment in its San Francisco startup partner OpenAI, maker of the writing tool ChatGPT and other AI systems that can generate readable text, images and computer code.
Microsoft, which owns the Xbox gaming business, also faces uncertainty in the United States and Europe, delaying its planned $68.7 billion takeover of video game company Activision Blizzard, which had about 9,800 employees a year ago.