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Microsoft Corp. will let go 10,000 employees, or about 5% of its workforce, as part of an effort to reduce costs.

Microsoft Chief Executive Officer Satya Nadella announced the move in an internal memo released this morning. The job cuts will be carried out through March 31, the end of the company’s fiscal third quarter. The cuts follow two smaller rounds of layoffs in July and October.

“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,” Nadella wrote in the memo. 

Other major tech companies are also cutting jobs to lower costs. Today, Amazon.com Inc. began a previously announced workforce reduction initiative that is expected to affect about 18,000 employees. Most of the job cuts will take place at the company’s human resources and physical retail divisions.  

As of last June, Microsoft had 221,000 full-time employees, 40,000 more than the same time a year earlier. The company onboarded 6,500 employees through its $19.7 billion acquisition of Nuance Communications Inc., which closed last March. Another 1,500 employees joined the company following its purchase of Xandr Inc., a former AT&T Inc. subsidiary that provides advertising software.

Microsoft didn’t disclose which business units are impacted by the layoffs announced this morning. In the memo, Nadella stated that affected employees in the U.S. will receive 60 days’ notice prior to termination and above-market severance pay, as well as healthcare coverage and stock award vesting for six months.

“We know this is a challenging time for each person impacted,” Nadella wrote. “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.”

Microsoft expects to take a $1.2 billion charge in connection with the job cuts. The charge also encompasses costs associated with certain changes to the company’s hardware portfolio, as well as its effort to lower expenses by reducing the amount of office space it leases. 

Though it’s scaling back spending on some initiatives, Microsoft plans to continue investing in growth areas. “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” Nadella wrote. Recent reports suggest that Microsoft could lead a $10 billion investment in OpenAI LLC, with which it’s partnering to develop new artificial intelligence features for its products.

The layoffs at Microsoft come less than a week before it’s set to report second quarter financial results. The company is projecting revenues of $52.35 billion to $53.35 billion for the quarter, which would represent a 2% year-over-year increase at the midpoint of the range. Analysts had expected Microsoft to forecast significantly higher revenues of $56.05 billion.

Photo: Microsoft

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