Microsoft (NASDAQ: MSFT) is the latest tech giant to announce layoffs in preparation for an expected economic downturn in 2023. In regulatory filings, the company said that it would be cutting 10,000 jobs "in response to macroeconomic conditions and changing customer priorities."
In an email to employees, Microsoft's CEO Satya Nadella wrote that the company is "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."
The note from Nadella was also included in Microsoft's filing with the U.S. Securities and Exchange Commission (SEC). In the note, Nadella laid out three priorities for the company.
"First, we will align our cost structure with our revenue and where we see customer demand," Nadella wrote. "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."
As Nadella pointed out, these cuts represent less than 5% of the company's 221,000 employees. Neither the note nor the filing laid out which divisions at Microsoft would be facing layoffs.
Next, Nadella briefly explained Microsoft's investment plans for the coming quarter, saying the company would be making "hard choices" in order to keep up with a changing market "that is unforgiving to anyone who doesn't adapt to platform shifts."
"We are taking a $1.2B 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.
Finally, Nadella acknowledged the company's responsibility to "treat our people with dignity and respect", including by maintaining transparency with its workforce. Laid-off workers in the U.S. who are eligible will receive a range of benefits, including severance pay, six months' healthcare coverage, career transition services, and 60 day's notice before termination.
"We are committed to ensuring all those whose roles are eliminated have our full support during these transitions," Nadella wrote to employees.
The company will continue to hire in "strategic areas" as it adapts to focus more on new and growing opportunities, like artificial intelligence and video games.
Microsoft has partnered with the AI startup OpenAI to provide hosting and support for its viral AI tools, including the chatbot ChatGPT and the Dall-E image generator. There are rumors that the tech giant plans to give OpenAI an additional $10 billion in funding.
On the video games side, Microsoft recently acquired game developer Activision Blizzard (NASDAQ: ATVI) for $69 billion. The deal is currently facing challenges from federal antitrust regulators.
During the pandemic, Microsoft and many other tech companies started rapidly hiring employees as the industry boomed. Now, those same companies are having "a rip off the Band-aid moment to preserve margins and cut costs," as one Wedbush analyst wrote.