Microsoft has confirmed it is latest Big Tech company planning mass layoffs, with 10,000 staff facing the axe this year.
News of the redundancies was confirmed by CEO Satya Nadella in a memo to staff this afternoon following widespread reports that cuts were on the way.
“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,” Nadella 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.
“Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3.”
The changes will see Microsoft incur a $1.2bn charge in the upcoming quarter related to “severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces,” Nadella added.
News of the redundancies, first reported by Sky News, comes amid a slowing global economy. Microsoft previously warned in October that its cloud business, Azure, was slowing down as corporate customers started re-evaluating spending due to growing economic challenges.
However, pressure is being placed on Azure to grow quickly and narrow the gap on public cloud market leader, Amazon’s AWS, after several quarters of downturns in the PC market hit the company’s Windows division. This downturn is likely to continue until at least 2024, according to analysis from Gartner, meaning Microsoft is likely to need to lean heavily on its cloud income.
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Microsoft layoffs come as company bets on AI
Indeed, the global cloud computing market size is projected to reach $791bn by 2028, with a CAGR of 17.9% up to that point and as new services such as artificial intelligence and quantum computing come online, this could grow further and faster than expected.
Microsoft has placed a large bet on artificial intelligence, announcing plans to bring the entire OpenAI suite of APIs to Azure, including the natural language chatbot ChatGPT. This it hopes will set it apart from AWS and other cloud providers due to the popularity of the large language models produced by OpenAI.
The company is also locked in a regulatory battle over its planned takeover of gaming company Activision Blizzard, producer of popular franchises including Call of Duty, in a deal worth £56bn. It also took a £1.5bn stake in the London Stock Exchange as part of a deal to bring them into Azure and is said to be looking at taking a $10bn stake in OpenAI.
In the memo sent today, Nadella added that “the next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform.” He said that alongside the redundancies, Microsoft would continue to invest “in strategic areas for our future, meaning we are allocating both our capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas”.
He added: “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.”
Companies including Meta, Twitter, Salesforce, Lyft, Stripe, Tencent and Oracle have been letting staff go amid uncertain economic conditions, poor advertising performance and a bleak outlook for 2023 with Amazon most recently announcing up to 18,000 job losses and the closure of some of its warehouses.
Most recently game engine company Unity announced it would be eliminating 284 jobs due to negative economic trends including in the digital advertising market. Some of this will be through reducing duplication after recent acquisitions.
IT spending remains strong
It may not all be doom and gloom for the global tech giants, as Gartner is predicting a slight uptick in global IT spending this year, with the majority of that spending coming from enterprise customers, not the consumer market. Inflation is eroding consumer purchasing power, but IT spending will remain strong due to digital transformation investments, the analysts predict.
“A turbulent economy has changed the context of business decisions and can cause CIOs to become more hesitant, delay decisions or reorder priorities,” said Gartner’s distinguished VP analyst John-David Lovelock. “We’ve seen this in action with the reshuffling taking place among some B2B companies, especially those that overinvested in growth. However, IT budgets are not driving these shifts, and IT spending remains recession-proof.”
Despite the mass layoffs announced by Big Tech companies in recent weeks it looks like there are places for those tech employees to go as the job vacancy rates remain high. That is according to Gartner, finding that they have been increasing every quarter. This high competition for talent has been limiting growth for companies struggling to scale, so it could result in a boost for smaller companies scooping up talent let go by the larger employers.
Simultaneously as software spend continues to rise, the IT services market is growing as companies look to bring in outside IT staff for implementation and support. For example, spending on consulting is expected to reach $264.9bn in 2023, a 6.7% increase from 2022.
“CIOs are losing the competition for talent,” said Lovelock. “IT services spending is growing more quickly than internal services in every industry. Skilled IT workers are migrating away from the enterprise CIO towards technology and service providers who can keep up with increased wage requirements, development opportunities and career prospects.”
