Microsoft lays off 10,000 employees, takes $1.2 billion charge amid slower revenue growth

Microsoft, the maker of Windows and Office, announced on Wednesday that it is laying off 10,000 employees as the software maker braces for slower revenue growth. The company is also taking a $1.2 billion charge in the fiscal second quarter that will result in a negative impact of 12 cents to earnings per share. This move will reduce Microsoft’s headcount by less than 5%.

This news comes after a number of other technology companies, such as Alphabet, Amazon and Salesforce, have also lowered their headcount in recent weeks. The contraction in these companies comes after demand for cloud computing and collaboration services picked up as enterprises, government agencies and schools encouraged remote work to reduce Covid-19 exposure. However, now that prices have risen, companies are becoming more careful about their technology spending, hurting the prospects for tech stocks that have outperformed other market sectors year after year.

In a memo to employees, CEO Satya Nadella stated, “I’m confident that Microsoft will emerge from this stronger and more competitive.” He also reassured that employees in the U.S. who are eligible for benefits will receive severance that’s above the market and six months of health care and stock vesting, along with 60 days’ notice before their work ends.

Nadella explained that the layoffs are due to the change in the business climate, stating, “As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less. We’re also seeing organizations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one.”

An analyst at DA Davidson, Gil Luria, said that the layoffs are not a major surprise given the deterioration in Microsoft’s cloud-infrastructure and Windows operating system sales over the past few quarters. However, he also stated that investors are very concerned about the margins of many technology companies, including Microsoft.

The layoffs are expected to save Microsoft around $2.5 billion over the next 12 months, or 14 cents per share when including the charge, according to analysts at Evercore ISI. This move is not an annual exercise for the 47-year-old company, but it is a necessary step in order to adapt to a slower-growth environment and show discipline and focus on shareholder value.

It remains to be seen how these layoffs will impact Microsoft and its future growth, but the company is confident that it will emerge stronger and more competitive.

In addition to the layoffs, Microsoft is also consolidating its leasing operations, which will result in a $1.2 billion charge in the fiscal second quarter. This move is aimed at streamlining its operations and reducing costs, as the company faces slower revenue growth and increased competition in the technology industry.

The layoffs will affect all teams and geographies, with more impact coming to sales and marketing than engineering, according to a company spokesperson. Microsoft has also stated that it will provide support and resources to help employees transition to new opportunities.

However, this news has not been met without criticism. Some have argued that the layoffs are a sign of poor management and a lack of strategic planning at Microsoft. Others have pointed out that the company's decision to lay off employees, despite its strong financial position, is a reflection of the current economic climate and the increasing pressure on tech companies to cut costs and improve margins.

Despite the layoffs, Microsoft remains a profitable and successful company. It continues to be a leader in the technology industry, with a diverse range of products and services that are used by businesses and consumers around the world. The company has also recently announced new initiatives, such as a $1 billion investment in a new data center in Norway, which is expected to create jobs and boost the local economy.

As the technology industry continues to evolve, it is important for companies like Microsoft to adapt and make difficult decisions in order to remain competitive. While the layoffs are a significant setback for the affected employees, the company is confident that it will emerge stronger and more competitive in the long run.


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