Microsoft announced its plans to cut 10,000 jobs by the end of March, representing less than 5% of the tech company’s total global workforce of 220,000, reports GeekWire. Microsoft announced the layoffs on Wednesday and said some layoff notifications would be made that day.

Microsoft CEO Satya Nadella told employees the company needed to align their costs with revenue and anticipated customer demand. He also said the company is allocating “capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas.” He did not specify which divisions would be impacted.

“It’s important to note that while we are eliminating roles in some areas, we will continue to hire in key strategic areas,” said Nadella in a memo to staff that was shared in a Form 8-K filing with the Securities and Exchange Commission. 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.

“These decisions are difficult, but necessary. They are especially difficult because they impact people and people’s lives—our colleagues and friends,” Nadella said.

U.S. benefit eligible employees with receive above-market severance pay, continuing health coverage for six months, continued vesting of stock awards for six months, career transition services, and 60 days’ notice prior to termination, even where not required by law.

“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,” said Nadella.

Microsoft also said they would take a $1.2 billion hit in its second fiscal quarter financials, due to be released on Tuesday. This charge is related to severance costs, hardware portfolio changes, and lease consolidation as the company makes better use of its existing workspaces. The $1.2 billion charge will represent a $0.12 negative impact to diluted earnings per share.

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2022 Microsoft layoffs

Last July, Microsoft announced a similar reduction in their workforce as part of a larger “strategic realignment.” Though the company didn’t specify the number of cuts, they representing less than 1% of their global workforce of 180,000. Some of the Microsoft layoffs included roles in consulting and customer and partner solutions, and the roles were spread across multiple regions.

“Today we had a small number of role eliminations. Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly,” Microsoft said in a statement emailed to Bloomberg in July. “We will continue to invest in our business and grow headcount overall in the year ahead.”

The Redmond, Washington-based tech company laid staff off in October. That round of Microsoft layoffs included employees from across the company, including employees in the Xbox division, legal, strategic missions and technology, and other divisions. Though the company did not confirm the total at that time, sources say that fewer than 1,000 employers will be laid off, reported Business Insider at the time.

First fiscal quarter results

For Microsoft’s first fiscal quarter of 2023, for the period ended September 30, 2022, Microsoft reported revenue of $50.1 billion, an 11% increase year-over-year. Operating income was $21.5 billion, a 6% increase, but net income of $17.6 billion represented a 14% decrease. Diluted earnings per share were $2.35, a 13% decrease year over year.

“In a world facing increasing headwinds, digital technology is the ultimate tailwind,” said Nadella in an October 25, 2022 news release. “In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way.”

“This quarter Microsoft Cloud revenue was $25.7 billion, up 24% (up 31% in constant currency) year-over-year. We continue to see healthy demand across our commercial businesses including another quarter of solid bookings as we deliver compelling value for customers,” said Amy Hood, executive vice president and chief financial officer of Microsoft. 

Insider Take

The staffing carnage continues as tech companies like Microsoft, Salesforce, Meta and Amazon rightsize as the pandemic eases up and demand for their services isn’t as high. Microsoft layoffs are being made for similar reasons – a pending recession, increased expenses, an uncertain economy, lower demand, and strategic realignment to fit customers’ new needs. It is very unfortunate to see tens of thousands of employees impacted around the world by the hard decisions employers have to make.

Takeaway for subscription companies: One of the beauties of the subscription model, whether it is SaaS, subscription or membership, is that it can be scaled to meet the changing needs of the business and its customers. Unfortunately, right now, that means scaling back and reconsidering where their next investments should be made. If the pandemic taught us nothing else, it taught us that we should expect the unexpected, and we should try to solidify our strategies and scale our organizations incrementally rather than en masse, because the latter can lead to disastrous and expensive results.

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