The cuts come as consumer digital spending slows and fears of a recession persist.
Microsoft CEO Satya Nadella announced today that the company will lay off 10,000 employees as part of an effort to "align our cost structure with our revenue and where we see customer demand."
It's an astounding number of job losses, although it represents a relatively small slice of Microsoft's total employee count: Nadella said in the memo released today that the cuts constitute less than five percent of the company's workforce, which is estimated to number roughly 221,000 employees worldwide.
Some employees will be notified of their dismissal today, but the cuts will continue through the third quarter of Microsoft's 2023 fiscal year which ends on March 31. Microsoft will take a $1.2 billion expenditure in its current fiscal quarter "related to severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces."
It's not publicly known yet where the cuts will be made. One Bloomberg report quoted a source who said the company's engineering divisions are being targeted, while another cited sources saying employees at Starfield developer Bethesda Softworks and Halo studio 343 Industries will also be let go. Xbox principal engineer Gary Waliczek also said in a since-deleted tweet that gaming divisions will be impacted.
Nadella said the layoffs were necessitated by a slowdown in digital spending that had accelerated during the first years of the Covid-19 pandemic, as well as a broader industry concern about a looming recession.
"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," Nadella said.
The cuts come a year after Microsoft's announcement that it plans to acquire Activision Blizzard, which employs nearly 10,000 people itself, for $68.7 billion. That purchase is currently trudging through regulatory tangles as Sony and others seek to block Microsoft from owning an even larger slice of the gaming industry after its Bethesda acquisition.
Microsoft will announce the second quarter results of its 2023 fiscal year on January 24. Microsoft earned $50.1 billion during the first three months of the fiscal year, resulting in net income of $17.6 billion.
Including stock awards, Nadella made $54.95 million in 2022. The next most compensated executive was CFO Amy Hood, who received $26.3 million.
Microsoft isn't the only big tech company to announce major layoffs in recent months. In November 2022, Facebook parent Meta (Q3 FY2022 net income $4.4 billion) announced plans to lay off more than 11,000 employees, and in January Amazon (Q3 FY2022 net income $2.9 billion) said that it will cut more than 18,000 employees through early 2023.
