Microsoft said it plans to cut 10,000 jobs, or about 5% of its workforce, taking steps to cope with an increasingly bleak economic outlook that has now bruised many of the technology industry's biggest names.
The company will take a $1.2 billion charge in the second fiscal quarter related to the move, which will shave off 12 cents of earnings per share, the company said in a corporate filing. The layoffs come as the software giant said it's seeing customers exercise caution, with some parts of the world in recession and others heading toward one. Microsoft is scheduled to report results Jan. 24, forecast to post its slowest revenue increase in six years.
Speaking early Wednesday, before the cuts were announced, Microsoft CEO Satya Nadella said the tech industry is going through a slowdown and will need to adjust.
"During the pandemic there was rapid acceleration. I think we're going to go through a phase today where there is some amount of normalization in demand," Nadella said in an interview at the World Economic Forum in Davos, Switzerland. "We will have to do more with less -- we will have to show our own productivity gains with our own technology."
Microsoft joins the ranks of other major technology companies that have announced job cuts in the thousands in the past few months.
Cloud rival and Seattle-area neighbor Amazon began layoffs Wednesday, ultimately affecting more than 18,000 employees in its largest job cull.
Facebook parent Meta Platforms announced widespread job cuts last fall, and Twitter has slashed about half its workforce. Corporate cloud-software maker Salesforce laid off about 10% of workers earlier this month.
Redmond, Wash.-based Microsoft said the $1.2 billion charge will go to severance costs, "changes to our hardware portfolio" and the cost of consolidating real estate leases as the company creates higher density across its work spaces.
In a blog post and email to employees, Nadella said that even as the company is eliminating roles in some areas it will continue to hire in "key strategic areas." The company didn't specify where the job cuts would be concentrated, but Bloomberg reported earlier that the company plans to eliminate positions in a number of engineering divisions.
Among the cuts, Microsoft will reduce its HoloLens goggles business as it scales back work on a headset for the U.S. Army that Congress declined to fund this year, according to people familiar with the matter. Earlier this month, Congress rejected a request for $400 million to buy as many as 6,900 of the goggles in the current fiscal year.
The job cuts will be completed by the end of Microsoft's fiscal third quarter, according to the company.
When Microsoft Corp. reports earnings Jan. 24, the company is expected to post a second-quarter sales gain of 2%. That would be the slowest quarterly revenue increase since fiscal 2017. Microsoft's cloud-computing products have fueled a resurgence in growth in the past decade, but even that business has begun to decelerate.
Analysts had been predicting that Microsoft, which has weathered past slowdowns without significant job cuts, would feel the pinch this year. On Tuesday the company was downgraded to sell from neutral at Guggenheim Securities, the first bearish analyst rating on the software maker in more than three years.
Guggenheim analyst John DiFucci cited Microsoft's exposure to small- and mid-sized businesses as a risk in an economic slowdown, along with growth concerns for the company's Windows operating system and Azure cloud computing businesses. Earlier this month, UBS cut the stock to neutral, pointing to concerns about the cloud-computing division.
Microsoft will start notifying some of the fired workers immediately, with others to come in the next several months. U.S. workers who get benefits will receive "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," Nadella wrote in the blog post and email to workers.
Outside the U.S., Microsoft will comply with local laws.