Microsoft said on Wednesday (18th) that it will lay off 10,000 employees by the end of the third quarter of the 2023 fiscal year (March 31), accounting for about 5% of the total number of employees, in response to slowing revenue growth. In addition, Microsoft’s layoffs will cost $1.2 billion in related expenses, which is estimated to reduce earnings per share by $0.12 in the second quarter of fiscal 2023.
Before the deadline, the stock price of Microsoft (MSFT-US) rose 0.22% in early trading, tentatively reported at $240.87 per share.
In a memo to employees, Microsoft Chief Executive Satya Nadella said customers want to “optimize their digital spending to do more with less” and “remain cautious as economies in some parts of the world are is in recession, and the rest of the world is also expected to be in recession.” Nadella had warned the day before that the industry was going through a period of slowdown and needed to adjust.
As for the $1.2 billion charge it took in the second quarter, Microsoft said the money would be used for severance payments, hardware mix changes and the cost of consolidating real estate leases as the company densifies its offices. In addition, Nadella also mentioned in the memo that although the company is eliminating positions in some areas, the company will continue to recruit talents in “key strategic areas”.
Microsoft will announce its financial report for the second quarter of fiscal year 2023 next Tuesday (24th). It is estimated that the company’s revenue will only grow by 2%, which may be the slowest revenue growth in six years. Microsoft’s cloud-computing products have fueled a recovery in growth over the past decade, but even that business is now decelerating.
Wall Street analysts have been predicting that Microsoft will feel the pressure this year. The company has avoided mass layoffs during past economic slowdowns. Wall Street investment bank Guggenheim (Guggenheim) has become increasingly pessimistic on Microsoft stock, downgrading the stock from “neutral” to “sell” and setting a new target price of $212 per share, an implied drop from the current share price. 12%, the reason is that the software demand of large enterprises and small companies is deteriorating.