Citing a need to “align our cost structure with our revenue and where we see customer demand,” Microsoft CEO Satya Nadella told employees Wednesday that the company will cut 10,000 jobs between now and the end of March.
The layoffs represent about 5% of Microsoft’s workforce of more than 220,000 employees.
In addition, the company will take a $1.2 billion charge in its second fiscal quarter when it releases its full financial results next week. Nadella told employees that the charge is “related to severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces.”
The memo did not provide more detail on the areas to be impacted. [Read the full text below.]
Microsoft is “allocating both our capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas,” Nadella wrote in the memo to employees.
“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,” he added.
It’s the second-largest workforce reduction in Microsoft’s history. The company cut 18,000 employees in 2014, several months after Nadella became CEO. The majority of those cuts involved Nokia’s Devices & Services business, which Microsoft had acquired under Nadella’s predecessor as CEO, Steve Ballmer.
With the pandemic causing many of its corporate customers to boost technology spending, Microsoft grew substantially to meet the demand. The company added 40,000 employees in its 2022 fiscal year, ending in June, up 22% over the prior year. That brought its total employment to more than 221,000 people.
About 45% of the growth, 18,000 positions, came in operations roles, which surpassed product research-and-development as Microsoft’s largest category of employment, according to numbers included in the company’s annual 10-K report filed with the Securities and Exchange Commission.
A big chunk of the growth came through acquisitions, including 6,500 employees added through the company’s $19.7 billion acquisition of Nuance Communications, and another 1,500 employees through the acquisition of Xandr, the former AT&T advertising technology division.
Microsoft made smaller cutbacks in July and October of last year, but nothing on the scale of the latest move. After the July layoffs, at the close of its 2022 fiscal year, Microsoft said it planned to continue growing headcount.
With the new cutbacks, Microsoft becomes the latest tech company to make significant layoffs as the tech sector emerges from the pandemic and faces an uncertain economy. Amazon is laying off 18,000 employees, or 5% of its corporate workforce. Salesforce, which has thousands of employees in the Seattle region, recently cut 10% of its headcount. A number of tech startups in the Seattle area are also making layoffs.
Here is the full memo from Satya Nadella to Microsoft employees, as sent to employees and published by the company on its official blog.
Subject: Focusing on our short- and long-term opportunity
We’re living through times of significant change, and as I meet with customers and partners, a few things are clear. First, as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less. We’re also 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. At the same time, the next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform.
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. I’m confident that Microsoft will emerge from this stronger and more competitive, but it requires us to take actions grounded in three priorities.
First, we will align our cost structure with our revenue and where we see customer demand. 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. It’s important to note that while we are eliminating roles in some areas, we will continue to hire in key strategic areas. We know this is a challenging time for each person impacted. The senior leadership team and I are committed that as we go through this process, we will do so in the most thoughtful and transparent way possible.
Second, we will 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. 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. As such, 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.
And third, we will treat our people with dignity and respect, and act transparently. These decisions are difficult, but necessary. They are especially difficult because they impact people and people’s lives – our colleagues and friends. We are committed to ensuring all those whose roles are eliminated have our full support during these transitions. U.S.-benefit-eligible employees will receive a variety of 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, regardless of whether such notice is legally required. Benefits for employees outside the U.S. will align with the employment laws in each country.
When I think about this moment in time, the start of 2023, it’s showtime – for our industry and for Microsoft. As a company, our success must be aligned to the world’s success. That means every one of us and every team across the company must raise the bar and perform better than the competition to deliver meaningful innovation that customers, communities, and countries can truly benefit from. If we deliver on this, we will emerge stronger and thrive long into the future; it’s as simple as that.
I want to extend my deepest thanks and gratitude to everyone who has contributed to Microsoft up to this point and to all of you who will continue to contribute as we chart our path ahead. Thank you for the focus, dedication, and resilience you demonstrate for Microsoft and our customers and partners each day.
Note: Timing of cuts corrected since original post. Developing story, more to come. GeekWire managing editor Taylor Soper contributed to this report.