Microsoft announced on Wednesday that it will be laying off 10,000 employees by the end of March, as the company anticipates a slowdown in revenue growth. Additionally, the company will be taking a $1.2 billion charge in the second quarter of the fiscal year, resulting in a negative impact of 12 cents on earnings per share.
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Several technology companies, such as Alphabet, Amazon, and Salesforce, have reduced their workforce in recent weeks. This reduction in employees comes after a surge in demand for cloud computing and collaboration services, as organizations, government agencies, and educational institutions have encouraged remote work as a means of reducing Covid-19 exposure.
The increasing cost of technology has led companies to be more cautious with their technology spending, which has negatively impacted the outlook for tech stocks that have consistently outperformed other market sectors in recent years. In response to this trend, Microsoft and other companies in the industry are reassessing their strategies. In July, Microsoft announced plans to reduce its workforce by less than 1%, and in October, the company confirmed additional job cuts that reportedly impacted fewer than 1,000 employees.
“I am confident that Microsoft will come out of this even stronger and more competitive,” CEO Satya Nadella stated in a memo to employees which was made public on Microsoft’s website. He also mentioned that the layoffs will affect less than 5% of the company’s workforce and that some employees will be informed about their job status this week.
After the announcement, Microsoft’s shares had a slight increase during the U.S. market opening.
In his memo, Nadella stated that eligible employees in the U.S. will receive severance pay that exceeds industry standards, as well as six months of healthcare coverage and stock vesting. Additionally, they will be given 60 days’ notice prior to their employment ending.
Nadella repeated the trends in the business environment that he has previously mentioned over the past few months.
“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,” he wrote. “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.”
Nadella had previously hinted that the company might have to make adjustments earlier this month.
“I think for us as a global company, we’re not going to be immune from what’s happening in the macro,” he said in an interview with CNBC-TV18. “We will have to also get our own sort of operational focus on making sure our expenses are in line with our revenue growth.”
Microsoft has projected a 2% growth in revenue for the second quarter of the fiscal year, which would be the lowest rate since 2016.
Large-scale layoffs are not a regular occurrence for Microsoft, but they do happen from time to time. In 2017, Microsoft eliminated thousands of jobs as part of a comprehensive restructuring of its sales division. Similarly, after acquiring Nokia’s devices and services business in 2014, the company let go of 18,000 employees.
In his memo, Nadella explained that the charge is associated with severance pay, adjustments to the company’s hardware lineup, and expenses incurred from merging leases.
“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,” Nadella wrote. “If we deliver on this, we will emerge stronger and thrive long into the future; it’s as simple as that.”
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