The layoffs will impact approximately 5% of the software company’s overall workforce, which currently includes 122,000 domestic employees and 99,000 international employees. Microsoft confirmed the layoffs in a regulatory filing and a memo to staff members in which Nadella said the company would battle economic headwinds while investing in new technology.
“This is the context in which we as a company must strive to deliver results on an ongoing basis, while investing in our long-term opportunity,” Nadella told employees. “We will align our cost structure with our revenue and where we see customer demand … It’s important to note that while we are eliminating roles in some areas, we will continue to hire in key strategic areas.”
Shares for Microsoft were flat in the first hour of trading on Wednesday morning against a 0.5% increase in the S&P 500 and a 0.8% increase in the technology-heavy NASDAQ. The company’s stock price fell more than 20% over the past year against a 12% decline in the former index and a 22% drop in the latter.
Nadella added that the company 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 remarked that artificial intelligence represents “the next major wave in computing” and said Microsoft is working to create platforms using the world’s most advanced models.
Microsoft experienced a 14% decrease in net income as of the first quarter of fiscal year 2023 even as revenues increased 11%, according to an earnings report.
“In a world facing increasing headwinds, digital technology is the ultimate tailwind,” Nadella said. “In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way.”
Microsoft was among several leading companies in the technology industry to introduce layoffs and hiring freezes last year. Firms in the sector dismissed more than 90,000 workers, according to a report from CrunchBase, which included both small ventures and established firms such as Amazon and Tesla. Some investors have criticized technology companies for rapidly expanding payrolls, calling for a reduction in headcount to match dismal market forecasts.
The layoffs come one month after officials at the Federal Trade Commission blocked Microsoft from acquiring video game developer Activision Blizzard for $69 billion, claiming that the merger would enable the company to reduce market competition with subsidiary Xbox. Microsoft President Brad Smith contested the agency’s sentiments in a statement claiming that the firm had already addressed antitrust worries from regulators.
“We continue to believe that our deal to acquire Activision Blizzard will expand competition and create more opportunities for gamers and game developers,” he remarked. “While we believe in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present it in court.”