Industry responds to shift in digital spending post-pandemic and bleak 2023 economic outlook
Microsoft cited post-pandemic shift in digital spending habits and global economic weakness for cutting 10,000 jobs. The trend of downsizing is also followed by other US tech companies including Meta, Amazon, and Salesforce, which had been expanding their workforce due to pandemic-induced demand, now slowed down. Satya Nadella, Microsoft’s CEO, explained in a blog post that customers had increased their digital spending during the pandemic, but now were reducing it.
According to Nadella, organizations globally are cautious due to some regions being in a recession and others expecting one. Additionally, he cited artificial intelligence as the “next major wave of computing,” representing the significant changes the company is experiencing. Microsoft, which invests in OpenAI, the company that created ChatGPT chatbot, will align its cost structure with revenue and customer demand. As a result, the company is cutting 10,000 jobs.
Microsoft’s global workforce comprises around 220,000 employees, so the job cuts account for less than 5% of its total workforce. These layoffs, to be completed by the end of March, will result in a charge of $1.2bn (£1bn) in the second quarter of its fiscal year, according to Microsoft. The company also carried out some job reductions last year, with a small number of roles being eliminated in July, and fewer than 1,000 employees laid off across various divisions in October, as reported by Axios. Due to declining demand for its Windows and accompanying software, following the end of a pandemic-related surge, Microsoft is struggling with a slump in the personal computer market. Similarly, the slowdown in demand has impacted Microsoft’s cloud computing unit, which is now the largest part of its business.
In addition to its cloud computing and software products, Microsoft owns the Xbox gaming platform and is pursuing a $68.7bn acquisition of Activision Blizzard, the video game maker behind popular titles like Call of Duty and World of Warcraft. However, the US Federal Trade Commission has opposed the deal on the grounds of competition. According to an analyst, Microsoft and other US tech companies are contending with a severe economic downturn.
In recent months, many tech companies’ job cut announcements have included mentions of overzealous hiring during the pandemic. Amazon, for example, had doubled its workforce to 1.5 million since March 2020, but recently announced the elimination of 18,000 of those roles. Andrew Jassy, Amazon’s CEO, cited “the uncertain economy” as the reason for the cuts, but also acknowledged the company’s rapid hiring over the past few years.
According to Bloomberg, Amazon has commenced the widespread job cuts, with workers in the US, Canada, and Costa Rica receiving email notifications starting on Wednesday. Bloomberg also reported that affected employees in China will be informed after the Lunar New Year, while in other areas, the company must hold consultations with employee representatives before initiating layoffs. In November, Mark Zuckerberg, the CEO of Facebook and Meta, which owns Instagram, announced 11,000 job cuts after acknowledging that the pandemic-induced surge in online activity “did not play out the way I expected.”
According to the speaker, the swift expansion of companies like Microsoft, Alphabet (Google’s parent company), and Meta was fueled by intense competition to attract tech talent, which drives the companies’ value. He stated that these tech firms significantly grew their workforces over the past two years, expecting the pandemic-driven growth, partially boosted by government stimulus, to persist.
