Microsoft joined legions of tech companies that have been trimming staff in recent moves, announcing layoffs of 10,000 employees Wednesday as part of a restructuring intended to brace the company for a potential economic downturn.
The tech giant is the latest to cut workers amid economic uncertainty that has taken a heavy toll on the tech, finance, media and housing sectors, as higher interest rates continue to weigh on the broader economy. Microsoft’s revenue largely comes from cloud computing and widely used software such as Word and PowerPoint and the Windows operating system, making it particularly plugged in to larger trends in the business world.
“Microsoft laying off is a canary in the coal mine for the broader economy,” said Dan Ives, managing director at Wedbush Securities. “And I think it shows that enterprises are starting to slow spending, with a mild recession likely on the doorstep.”
Other worrisome signs emerged Wednesday, as December retail sales fell for a third month, according to the Commerce Department, reflecting a continued pullback by consumers on a range of goods, save for groceries, despite the holiday shopping season.
During the first two years of the pandemic, companies like Amazon, Salesforce and Facebook parent Meta hired tens of thousands of new workers in an effort to take advantage of surging demand for software and gadgets as people spent more time working, shopping and relaxing at home. But as people have returned to in-person life, that demand has dropped off, and rising interest rates have made it more expensive to borrow money for new investments.
Major tech firms have announced plans for at least 57,000 job cuts in the coming months. (Amazon founder Jeff Bezos owns The Washington Post.)
“Microsoft’s announcement reflects a broad belief among big tech firms that they over-hired over the past three years and that customer demand in 2023 will be uncertain,” said J.P. Gownder, a vice president and principal analyst at research firm Forrester.
The layoffs at Microsoft amount to less than 5 percent of its 221,000-person workforce. Some of the affected workers were notified as soon as Wednesday, the company said.
“These are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn’t adapt to platform shifts,” said Microsoft chief executive Satya Nadella in a note to staff that was published on the company’s blog.
Microsoft, in particular, had been expanding rapidly during the pandemic, adding 77,000 employees from 2019 staffing levels, according to regulatory filings.
“The tech industry in general, and especially those focused highly on software and intellectual property like Microsoft, are facing especially strong macroeconomic pressure from the forecasted economic slowdown and especially the rapid rise in interest rates,” said Josh White, an assistant professor of finance at Vanderbilt University. “A large portion of their value is based on intellectual property rather than physical equipment. All companies will be looking to employ cost-cutting measures over the coming year, but for these companies that rely on IP, cost-cutting unfortunately means layoffs.”
Experts worry that the tech job shedding could represent the bleeding edge of economic woes. Inflation has weighed heavily on Americans’ pocketbooks, shifting spending toward absolute essentials and services and away from goods.
Retailers are already being affected. The Halloween supplier and retailer Party City filed for bankruptcy in federal court on Tuesday, and Bed Bath & Beyond could be next, waylaid by $1.1 billion in losses over its fiscal year, retail experts say.
Even as fears of an impending recession build, so far the labor market has continued to show resilience, with employers continuing to add jobs through December, despite the cool-down throughout the tech sector.
Labor market strength, as well as waning inflation, fueled an optimistic sentiment among the economic elite attending the World Economic Forum this week in Davos, Switzerland. Several conference speakers and goers talked about how a recession, both in the United States and around the world, is both inevitable but likely mild.
“If I was to describe the IMF’s outlook for 2023 in one line, it would be that we have a tough year ahead, but there are signs of resilience,” Gita Gopinath, deputy managing director of the International Monetary Fund, said in an address from Davos.
Microsoft’s retrenchment is its largest in several years. The company slashed 25,000 jobs between 2014 and 2015 after shedding the mobile phone operations acquired from Nokia and largely focusing on cloud computing, business software, certain hardware products and gaming.
Nadella told employees Wednesday that Microsoft would “continue to invest in strategic areas for our future . . . while divesting in other areas.” The company in recent months has poured money into artificial intelligence, including an investment in the maker of the ChatGPT artificial intelligence system. In December, Microsoft announced plans to fight federal regulators to finalize its acquisition of video game company Activision Blizzard, a risky bet that exposes major regulatory liabilities, but with considerable economic upside.
In a regulatory filing, Microsoft said it planned to cut costs through changes in its hardware portfolio—the company makes Surface tablets and other gadgets—and consolidating leased office space. The near-term cost of the moves is expected to be $1.2 billion in its fiscal 2023 second quarter. Microsoft has allowed many of its workers to work from home since the beginning of the pandemic.
Job cuts have been tearing through the tech sphere, with an average of 1,600 workers in the space losing their jobs each day in 2023 so far, according to Layoffs.fyi.
Amazon kicked off a fresh round of cuts on Wednesday as the company looks to trim its head count by more than 18,000, in what is projected to be the biggest round of cuts in the company’s history. Salesforce, one of the most high-profile makers of cloud software for businesses, recently reduced its head count by 10 percent, or nearly 8,000 jobs. Others, like Apple, have held off on layoffs while implementing hiring freezes.
Finance has also been hard-hit, with crypto companies and banking giants like Goldman Sachs slashing thousands of positions and reevaluating expenses, from bonuses to private jets.
In the lead-up to cutbacks, chief executives such as Tesla and Twitter’s Elon Musk, Salesforce’s Marc Benioff and Meta’s Mark Zuckerberg were publicly calling out low performers for waning productivity and asking workers to do more.