Microsoft will be laying off approximately 10,000 workers before the end of the third quarter of 2023, stated its Chief Executive Officer, Satya Nadella, in a memo sent to employees this morning.
The head of one of the largest tech firms in the world by market capitalization commented that, after meeting with customers and partners, the firm realized that customer demand has changed compared to the pandemic era as businesses are trying to “optimize their digital spend”.
In addition, companies in certain areas of the world are shrinking their IT budgets in response to the beginning of recessionary cycles in certain economies and expectations that a similar situation could soon occur in other latitudes.
As a result, Microsoft (MSFT) is reducing its cost structure to respond to these changes and they have started with a reduction of its headcount. These 10,000 jobs represent less than 5% of the company’s global workforce. The firm plans to keep hiring people for certain areas of the business that are considered strategic but has also eliminated roles in units whose performance or contribution to the firm’s growth is falling short of expectations.
The company will be offering those affected by the decision severance payment that exceeds the market’s average, healthcare coverage for six months, continued vesting of stock options for six months, and career transition support.
As a result of this transition, Microsoft will be taking a $1.2 billion charge related to severance costs and other restructuring expenses. The firm is doing this to ensure its “long-term competitiveness” as they have learned that the tech business is “unforgiving” to companies who fail to adapt to changing times.
Microsoft Seems Deeply Invested in Becoming the Leader of the AI Industry
One of the trends that the Redmond-based tech firm seems to be supporting is the use of artificial intelligence (AI) in business processes by relying on its cloud-based solution Microsoft Azure.
In regards to this, Nadella expressed: “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”.
It became evident that Microsoft was working hard to establish its leadership in this up-and-coming space after its $1 billion investment in OpenAI, the parent company of the popular software ChatGPT and Dall-E 2.
Given the rise in popularity of these solutions, Microsoft is exploring options to incorporate this technology into its existing portfolio of products and services such as MS Office and Bing – the firm’s search engine.
The firm founded by Bill Gates is reportedly planning to invest $10 billion more into OpenAI and could become the owner of around 49% of the business once and if the transaction is completed. In return, I will ask for three-quarters of the company’s profits until it fully recovers its investment.
Microsoft’s Share Value Drops as the World Economy is Expected to Cool Down
Last year, Microsoft stock lost roughly a quarter of its value as market participants fear that the actions taken by the Federal Reserve and other central banks will shock the global economy to the point of causing a recession.
In its latest World Economic Outlook Report released in October last year, the International Monetary Fund (IMF) predicted that the global economy will grow by 3.2% in 2022 and 2.7% the year after.
However, advanced economies are expected to see their average growth rates drop from 2.4% last year to 1.1% this year. Meanwhile, the United States, the largest market for Microsoft by revenue, could see its economic growth decelerate from 1.6% in 2022 to 1% this year.
Microsoft will be reporting its financial results covering the second quarter of the 2023 fiscal year on 24 January. Market participants will be paying attention to the leadership team’s comments in regard to these layoffs and the overall assessment of the global economy.
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