“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. This represents less than 5 percent of our total employee base, with some notifications happening today,” Nadella wrote in the blog post.
The chief executive chalked up the downsizing maneuver to aligning its cost structure with its revenue structure while investing in areas that the company predicts will show long-term growth.
(This story has been changed to correct the number for the expected cost to Microsoft of the planned layoffs. The correct number is $1.2 billion.)
Microsoft had reported its slowest growth in five years for the first quarter of its fiscal 2023, due largely to a strong US dollar and an ongoing decline in personal computer sales, causing net income to fall by 14% to $17.56 billion from this time last year.
Strategic hires and investment to continue
“It’s important to note that while we are eliminating roles in some areas, we will continue to hire in key strategic areas,” Nadella wrote.
One of these strategic areas could be the incorporation of AI into products and services such as Azure, Office 365 and Bing.
In the past few weeks, Microsoft has increased its focus into collaborating with conversational AI engine-maker OpenAI whose ChatGPT, which was released in November last year, took the internet’s fancy as it showcased a new way to search the internet.
The company plans to use the newfound interest to add the engine behind ChatGPT into its search engine Bing and Azure services. Further, it is expected to invest another $10 billion into OpenAI after investing $1 billion in 2019.
Layoffs will give Microsoft a $1.2 billion expense hit
The move to downsize 10,000 roles will impact Microsoft with a $1.2 billion one-time expenditure, the company said.
“…we are taking a $1.2 billion charge in Q2 related to severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces,” Nadella wrote.
Further, the company said that it is providing transition packages for the employees affected by the downsizing.
Employees in the US are expected to receive benefits including above-market severance pay, continuing healthcare coverage for six months, continued vesting of stock awards for six months, career transition services, and 60 days’ notice prior to termination, Nadella wrote.
“Benefits for employees outside the US will align with the employment laws in each country,” the top executive said.
Large technology companies have continued to downsize since August last year.
In just the first 18 days of 2023, 104 technology companies have laid off over 26,000 employees, data collated by layoffs.fyi showed. Last year, the portal shows that 1,021 companies let go of 154,036 employees.