Summary

• Microsoft is cutting 10,000 jobs as the company braces for slower revenue growth.
• The company is taking a $1.2 billion charge in the fiscal second quarter that will result in a negative impact of 12 cents to earnings per share.
• The layoffs are not a major surprise given the deterioration in Microsoft’s cloud-infrastructure and Windows operating system sales over the past few quarters, according to an analyst at DA Davidson.

Microsoft announced on Wednesday that it will be letting go of 10,000 employees through March 31st, as the company braces for slower revenue growth. The software maker is also taking a $1.2 billion charge in the fiscal second quarter, which will result in a negative impact of 12 cents to earnings per share. This move comes as other technology companies such as Alphabet, Amazon, and Salesforce have also been cutting headcount in recent weeks. The contraction is a result of rising prices, which have led companies to be more cautious about technology spending and hurting the prospects of tech stocks that have outperformed other market sectors year after year.

In July, Microsoft announced that it would trim less than 1% of its employees, and in October, it confirmed an additional round of job cuts that reportedly affected fewer than 1,000 workers. In a memo to employees, CEO Satya Nadella said, "I'm confident that Microsoft will emerge from this stronger and more competitive." The move will reduce Microsoft's headcount by less than 5%, and some employees will find out this week if they're losing their jobs.

The layoffs will impact all teams and geographies, with more impact coming to sales and marketing than engineering, a company spokesperson said. Employees in the US who are eligible for benefits will receive severance that's above the market and six months of health care and stock vesting, along with 60 days' notice before their work ends, Nadella wrote.

Nadella reiterated trends in the business climate that he has described in recent months. “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," he wrote. "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.”

This move by Microsoft is not a major surprise given the deterioration in the company's cloud infrastructure and Windows operating system sales over the past few quarters, said Gil Luria, an analyst at DA Davidson who has a buy rating on Microsoft stock. Investors are very concerned about the margins of many technology companies, including Microsoft, he said.

The layoffs may save Microsoft around $2.5 billion over the next 12 months, or 14 cents per share when including the charge, analysts at Evercore ISI, who have the equivalent of a buy rating on Microsoft stock, wrote in a note to clients. Major layoffs are not an annual exercise for Microsoft, but they do happen occasionally. In 2017, Microsoft laid off thousands of employees in a broad reorganization of its sales unit. In 2014, following the acquisition of Nokia's devices and services business, Microsoft cut 18,000 people. The reduction Microsoft announced on Wednesday is the largest since the Nokia layoffs, the spokesperson said.