Microsoft to lay off 10,000 workers due to economic downturn

Satya Nadella, CEO of Microsoft, has announced the company’s plan to lay off 10,000 employees as it looks to manage the economic downturn and refocus on key priorities such as Artificial Intelligence (AI). He talked about customers now cutting back on this spend, companies exercising caution as to the slowdown in growth and at the same time, the next major wave of computing being born with advances in AI.

In his message to staff, he stated that in the face of current realities and the rapid technological changes, the company “must strive to deliver results on an ongoing basis, while investing in our long-term opportunity.”

He rolled out actions grounded in three priorities:

1. The company will align its cost structure with its revenue and where it sees customer demand. The changes will see the company reduce its overall workforce by 10,000 jobs through the end of FY23 Q3. Although this represents less than 5 percent of our total employee base and must be done, the company will continue to hire in key strategic areas.
2. The company will continue to invest in strategic areas for its future. This means that it will be allocating both its capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas. Microsoft will be taking a $1.2 billion charge in Q2 related to severance costs, changes to its hardware portfolio, and the cost of lease consolidation as it creates higher density across our workspaces.
3. Microsoft says though the decisions are difficult but necessary, it will treat its people with dignity and respect, and act transparently. According to Nadella, “we are committed to ensuring all those whose roles are eliminated have our full support during these transitions. U.S.-benefit-eligible employees will receive a variety of benefits, including above-market severance pay, continuing healthcare coverage for six months, continued vesting of stock awards for six months, career transition services, and 60 days’ notice prior to termination, regardless of whether such notice is legally required. Benefits for employees outside the U.S. will align with the employment laws in each country.”

“When I think about this moment in time, the start of 2023, it’s showtime – for our industry and for Microsoft. As a company, our success must be aligned to the world’s success. That means every one of us and every team across the company must raise the bar and perform better than the competition to deliver meaningful innovation that customers, communities, and countries can truly benefit from. If we deliver on this, we will emerge stronger and thrive long into the future; it’s as simple as that.”

Nadella ends by saying “I want to extend my deepest thanks and gratitude to everyone who has contributed to Microsoft up to this point and to all of you who will continue to contribute as we chart our path ahead. Thank you for the focus, dedication, and resilience you demonstrate for Microsoft and our customers and partners each day.”

The layoffs which starts today, Wednesday, is the company’s largest layoff in roughly eight years.

In the area of new priorities, we can see the company increasing investment in Artificial Intelligence, with the attention towards OpenAI’s ChatGPT. The company recently mentioned the soon-coming availability of ChatGPT on its Azure OpenAI service. It is said that the company plans to invest $10 billion in OpenAI.

This is not the first in high profile layoffs in recent times due to the changing economic environment. Early this month, Salesforce announced its plan to lay off 7,000 employees and close offices in certain markets. Late late year, Meta announced that it was letting go of 11,000 employees (13%) to become a leaner and more efficient company.