Microsoft Corp. and Amazon.com Inc., two of the world’s biggest companies, began cutting a total of 28,000 jobs on Wednesday in a post-pandemic reckoning that has left almost no tech name unscathed.
The software giant began notifying some of the 10,000 workers that will lose their jobs this quarter, while its Seattle-based neighbor and cloud rival Amazon started sending out emails to people in the US, Canada and Costa Rica who are among 18,000 people whose positions will be eliminated.
Both companies said the painful measures were necessary to offset slowing sales and a possible recession that has made customers more cautious. The tech industry benefitted during the pandemic from a surge in demand for computers, phones, software and goods ordered online, leading to a frenetic pace of hiring. Salesforce Inc. announced earlier this month that it would cut about 10% of its workforce after acknowledging that its workforce nearly tripled in the past four years. Facebook parent Meta Platforms Inc. announced widespread job cuts last fall, and beleaguered social network Twitter Inc. has slashed about half its workforce.
Speaking before the cuts were announced, Chief Executive Officer Satya Nadella noted the tech industry is going through a period of slowing growth and will need to adjust.
“During the pandemic there was rapid acceleration. I think we’re going to go through a phase today where there is some amount of normalization in demand,” Nadella said in an interview at the World Economic Forum in Davos, Switzerland. “We will have to do more with less — we will have to show our own productivity gains with our own technology.”
Microsoft said it still plans to hire people in strategic, competitive areas, such as artificial intelligence. But many other divisions were losing staff, including its HoloLens goggles business which is scaling back work on a headset for the US Army that Congress declined to fund this year, according to people familiar with the matter. Bloomberg reported earlier that the company plans to eliminate positions in a number of engineering divisions. The cuts extended to Microsoft’s video-game division, where some people at Bethesda Game Studios, maker of the upcoming Starfield, as well as 343 Industries, the company behind 2021’s Halo Infinite, were affected, according to people familiar with the matter. Microsoft is eliminating 878 positions in Washington, according to a state employment filing.
“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 in a blog post and email to staff.
Meanwhile, Amazon’s worldwide retail chief Doug Herrington said the retail giant’s cuts were were part of an effort to lower costs “so we can continue investing in the wide selection, low prices and fast shipping that our customers love.” He said the company would “continue investing meaningfully” in growth areas including groceries, Amazon’s business-to-business sales program, services for third-party sellers and healthcare.
The eliminations started last year and initially fell hardest on Amazon’s Devices and Services group, which builds the Alexa digital assistant and Echo smart speakers. The latest round will mostly affect the retail division and human resources.
Microsoft will take a $1.2 billion charge in the second fiscal quarter related to the move, which will affect less than 5% of its workforce and shave 12 cents off of earnings per share, the company said in a corporate filing. Redmond, Washington-based Microsoft said the charge will go to severance costs, “changes to our hardware portfolio” and the cost of consolidating real estate leases as the company creates higher density across its workspaces.
Microsoft is scheduled to report results on Jan. 24. and is forecast to post a second-quarter sales gain of 2%, its slowest revenue increase in six years. Microsoft’s cloud-computing products have fueled a resurgence in growth in the past decade, but even that business has begun to decelerate.
Analysts had been predicting that Microsoft, which has weathered past slowdowns without massive job cuts, would feel the pinch this year. On Tuesday the company was downgraded to sell from neutral at Guggenheim Securities, the first bearish analyst rating on the software maker in more than three years.
Guggenheim analyst John DiFucci cited Microsoft’s exposure to small and mid-sized businesses as a risk in an economic slowdown, along with growth concerns for the company’s Windows operating-system and Azure cloud-computing businesses. Earlier this month, UBS cut the stock to neutral, pointing to concerns about the cloud-computing division.
Microsoft is making big bets on artificial intelligence to fuel its next wave of growth. It plans to incorporate AI-based tools — some built in-house and others from its partnership with developer OpenAI — into its Azure cloud services, office worker applications and software programming tools. It’s also still working to win more customers to Azure and cloud-based Office productivity programs, like Teams conferencing software, which generate recurring revenue streams.
Microsoft will start notifying some of the fired workers immediately with others to come in the next several months. US workers that get benefits will receive “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 said. Outside the US, Microsoft will comply with local laws.
Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.