Microsoft is set to eliminate 10,000 jobs and take a US$1.2 billion (S$1.6 billion) charge to earnings, as its cloud-computing customers reassess their spending and the company braces for a potential recession.
The layoffs, far larger than cuts by Microsoft last year, add to the tens of thousands of job cuts across the technology sector, which has downshifted following a strong growth period during the pandemic.
The news comes even as the software maker is set to ramp up spending in generative artificial intelligence (AI) which the industry sees as the new bright spot.
In a note to employees, CEO Satya Nadella attempted to address the divergent realities.
Customers wanted to "optimise their digital spend to do more with less" and "exercise caution as some parts of the world are in a recession and other parts are anticipating one," he said.
"At the same time, the next major wave of computing is being born with advances in AI."
Nadella said the layoffs, affecting less than 5 percent of Microsoft's workforce, would conclude by the end of March, with notifications beginning today.
However, Microsoft would keep hiring in "strategic areas," he said.
AI is likely to be one of those areas.
Nadella this week touted AI to world leaders gathered in Davos, Switzerland, claiming the technology would transform its products and touch people around the globe.
Microsoft has looked at adding to its US$1-billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to soon market through its cloud service.
The announcement corresponds with the start of layoffs at its retail and cloud-computing rival Amazon which started notifying employees of its own 18,000-person job cuts.
In an internal memo seen by Reuters, Amazon said that all affected workers in the United States, Canada and Costa Rica would be informed by the end of the day. Employees in China will be notified after the Chinese New Year.
The cuts reflect broader belt-tightening in the technology sector.
In 2022, more than 97,000 job cuts were announced, the highest in the sector since 2002, when 131,294 cuts were announced, according to outplacement firm Challenger, Gray and Christmas.
Among those cuts were 11,000 at Facebook parent Meta Platforms
The CEO of another company serving enterprises, Palantir Technologies Inc, this week told Reuters that reducing cloud spending was a top-ten priority for his customers.
PC sales slump
Microsoft's billion-dollar adjustment is in part due to severance costs as well as adjustments to Microsoft's hardware lineup and lease consolidation to build higher-density workspaces, Nadella said.
Microsoft declined to detail the hardware changes or say if it would stop developing any product line.
The company has grappled with a slump in the personal computer market after a pandemic boom fizzled out, leaving little demand for its Windows software and accompanying products.
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