Microsoft is laying off 10,000 employees, or nearly 5% of its workforce, joining other tech companies in slowing their pandemic-era expansions.

In a filing with the government on Wednesday, the company said that the layoffs were caused by “macroeconomic conditions and changing customer priorities.”

The software company, which is based in Redmond, Washington, also said that it was making changes to its hardware portfolio and combining its leased office locations.

With so many people working and studying from home, Microsoft is cutting far fewer jobs than it added during the COVID-19 pandemic as it responds to a surge in demand for its workplace software and cloud computing services.

“A large part of this is simply overeager hiring,” said Joshua White, a finance professor at Vanderbilt University.

Microsoft’s Staff Grew By 36%

In the two fiscal years after the outbreak, Microsoft’s staff grew by 36%, from 163,000 at the end of June 2020 to 221,000 in June 2022.

In an email to employees, CEO Satya Nadella said that the layoffs will affect “less than 5% of our total employee base,” and that some employees will find out today.

Nadella said, “We are cutting jobs in some areas, but we will keep hiring in key strategic areas.” He stressed how important it was to create a “new computer platform” based on advances in artificial intelligence.

Customers who increased their digital technology spending during the pandemic are now attempting to “optimize their digital spend to do more with less,” he said.

“We’re also seeing organizations in every industry and geography exercise caution as some parts of the world experience a recession and others anticipate one,” Nadella wrote.

Lots Of Cuts In The Tech Sector

Other tech firms have also cut jobs amid concerns about an economic slowdown.

Amazon and the company that makes business software, Salesforce, both cut a lot of jobs earlier this month. They did this to cut back on payrolls that grew quickly during the pandemic lockdown.

Amazon has announced the elimination of approximately 18,000 jobs. The layoffs are the largest in the Seattle company’s history, though they represent only a small portion of its 1.5 million global workforces.

Meta, Facebook’s parent company, is laying off 11,000 employees, or roughly 13% of its workforce. And Elon Musk, the new CEO of Twitter, has reduced the company’s workforce.

When Nadella spoke at the World Economic Forum’s annual meeting in Davos, Switzerland, on Wednesday, he did not directly mention the layoffs.

Finding A Balance After Covid

When the forum’s founder, Klaus Schwab, asked what the tech layoffs meant for the industry’s business model, Nadella stated that companies that boomed during the COVID-19 pandemic are now seeing “normalization” of that demand.

“Quite frankly, we in the technology industry will have to become more efficient, right?” According to Nadella. “It’s not about doing more with less than everyone else. We’ll have to make do with less. So we’ll have to demonstrate our productivity gains using our technology.”

Microsoft refused to comment on where the layoffs and office closures would be concentrated. On Wednesday, the company told employment officials in Washington state that it was firing 878 people from its offices in Redmond and the nearby cities of Bellevue and Issaquah.

It employed 122,000 people in the United States and 99,000 elsewhere as of June.

A Rapid Rise In Interest Rates

According to Vanderbilt professor White, all industries are looking to cut costs ahead of a possible recession, but tech companies may be especially sensitive to the rapid rise in interest rates, a tool that the Federal Reserve has used aggressively in recent months in its fight against inflation.

“This hits tech companies a little harder than industrials or consumer staples because a large portion of Microsoft’s value is on projects with cash flows that won’t pay off for several years,” he explained.

One of these projects is Microsoft’s recent investment in its startup partner in San Francisco, OpenAI, which makes the writing tool ChatGPT and other AI systems that can make readable text, images, and computer code.

Microsoft, which owns the Xbox game division, is also dealing with regulatory uncertainty in the United States and Europe, delaying its planned $68.7 billion takeover of video game company Activision Blizzard, which had approximately 9,800 employees a year ago.

SOURCE – (AP)