STORY: Microsoft on Wednesday said it will lay off 10,000 employees, adding to the surge in job cuts across the tech sector, as the company faces a slowdown in spending on cloud-computing and braces for a potential recession.
Alex Zukin, managing director at Wolfe Research, says the layoffs reflect broader belt-tightening in the industry.
"I think that many companies are 'right-sizing' their staff for what's likely to be a more incrementally challenging period in demand from the macro economy versus the last two years. And I think a lot of companies are using this as an opportunity to get more efficient and to align their cost structure with their revenue base. And Microsoft's, you know, one of the largest companies in the world, if not sometimes the largest. So, they're more macro exposed and more macro impacted than many other companies. And so, you know, I think this is the right move for the times that we're heading into."
The timing of the announcement comes the same day its cloud-computing rival Amazon said more employees will be notified in its own move to cut 18,000 jobs.
It also corresponds with the rapid rise in interest rates, says Aaron Terrazas, chief economist at Glassdoor.
"Fundamentally, a lot of companies in tech are grappling with the consequence of higher interest rates. At the end of the day, a higher interest rate is a higher cost of risk. And tech companies are in the risk business. They make bets on the future, on ideas, with the hope that those ideas are going to be profitable at some point down the line. The cost of waiting just got a lot more expensive over the past year, and so a lot of them are reevaluating, reevaluating their business lines, reevaluating their investments, and also reevaluating kind of the high labor costs that they've accumulated in the very tight labor market over the past year and a half."
In a note to employees, Microsoft CEO Satya Nadella said customers wanted to "optimize their digital spend to do more with less" and "exercise caution as some parts of the world are in a recession and other parts are anticipating one."
Nadella said the layoffs, affecting less than 5% of Microsoft's workforce, would conclude by the end of March.