Satya Nadella Confirms 10,000 Microsoft Layoffs
‘Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3,’ says Microsoft CEO Satya Nadella.
Microsoft CEO Satya Nadella told employees Wednesday in a blog post that Microsoft will be laying off approximately less than 5 percent of its global employee base due to a slowdown in customer demand and a potential recession ahead.
“We will align our cost structure with our revenue and where we see customer demand. Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3,” said Nadella. “This represents less than 5 percent of our total employee base, with some notifications happening today.”
[Related: AWS Not Impacted By Amazon’s 18,000 Layoffs]
The Redmond, Wash.-based company’s third fiscal quarter ends March 31, 2023.
Microsoft has a worldwide head count of around 221,000 people.
Nadella said while Microsoft is eliminating roles in some areas, it will continue to hire in “key strategic areas,” although he did not specify the areas where Microsoft plans to hire.
Although Wednesday marks one of the largest layoff rounds in the company’s history, Microsoft made cuts in 2022 as well.
In October 2022, Microsoft laid off less than 1,000 employees in various departments just days before its first quarterly earnings report for fiscal year 2023.
In July, Microsoft said it laid off less than 1 percent of its worldwide head count.
In 2014, Microsoft cut approximatley 18,000 employees after buying Nokia’s devices and services business for around $7 billion.
Why Microsoft Is Laying Off 10,000 Employees
Nadella said Microsoft is cutting 10,000 employees due to macroeconomic reasons and customers slowing down their IT spending.
Microsoft is expecting modest 2 percent year-over-year growth for its second fiscal quarter 2023—between $52.35 billion and $53.35 billion in sales.
This is a far slower growth rate than Microsoft has seen over the past several years. For example, for its first fiscal quarter 2023, Microsoft grew sales by 11 percent year over year.
“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,” said Nadella. “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.”
Microsoft must strive to deliver results on an ongoing basis, while investing in long-term opportunity, Nadella said, adding that he’s confident that “Microsoft will emerge from this stronger and more competitive.”
Microsoft’s $1.2 Billion Hit
Microsoft will take a $1.2 billion charge during its second quarter related to severance costs for laid-off employees, changes to its hardware portfolio, and the cost of lease consolidation as it creates higher density across its workspaces.
“These are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn’t adapt to platform shifts,” said Nadella.
AWS Not Impacted By Layoffs
Microsoft’s largest cloud computing competitor is Amazon Web Services.
The two companies mostly dominate the massive cloud market on a global basis along with Google Cloud.
Although Amazon recently announced 18,000 layoffs, sources told CRN that AWS would not be impacted by the layoffs.
“This is affecting Amazon as opposed to AWS,” said one top executive from an AWS partner familiar with the matter, who declined to be identified. “For AWS, the number of layoffs is not meaningful in any way.”
Amazon CEO Andy Jassy—who is AWS’ former CEO—told employees the cuts would mostly be in its Amazon Stores and PXT (People, Experience and Technology) organizations.
AWS CEO Adam Selipsky said in December during AWS re:Invent that now is the time for AWS partners and customers to dive deeper in cloud computing.
“There’s this uncertainty in the air,” said Selipsky on stage during a keynote at AWS re:Invent 2022. “A lot of people are asking, ‘Should we slow down? Should we pause?’ No. Now’s the time to lean in harder.
“Not in spite of it, but because of the economic uncertainty, our end customers will save money when they dig into cloud versus running those applications on different types of infrastructure,” said AWS’ CEO. “Now is the time to continue to accelerate the cloud journey.”
Microsoft is set to report its third-quarter financial earnings Jan. 24.
The Difference Between Microsoft And AWS
Ethan Simmons, managing partner of cloud consultancy and AWS services superstar Pinnacle Technology Partners, headquartered in Norwood, Mass, said he sees a sharp contrast between AWS and Microsoft with regard to customer cloud adoption.
“Our AWS consumption was up 30 percent in 2022 and we anticipate another 30 percent increase in 2023,” he said. “We continue to see robust growth in new applications, services and workloads with AWS. Azure adoption has traditionally been more conservative corporate IT spend. AWS is more leading edge start ups and companies that are innovating. Customers building new applications and services are doing them in AWS. Customers running existing corporate workloads are running them in Azure.”
Pinnacle Technology Partners is seeing customers relying on its managed services offerings to optimize cloud spend. “Customers are asking us to help them be smarter about their cloud spending,” he said. “That is driving more opportunities for us.”
David Stinner, founder and president of US itek, a Buffalo, N.Y.-based MSP, applauded Nadella for making the tough decisions for Microsoft to continue to be successful. In fact, Stinner said he sees the layoffs as a call to action for Microsoft partners to embrace change and drive further growth.
“How else are we going to go out and more customers if we don’t take Satya Nadella’s vision and convert more people to Office 365 and Azure?” he asked. “Satya Nadella is the most forward thinking CEO Microsoft has had since Bill Gates when the mantra was a computer on every desktop in every business and every home. Now the mantra is Microsoft creates the software to make people reach their full potential. The maturing of our industry means that we as MSPs can’t fly by the seat of our pants anymore. I see the new Microsoft partner requirements as hard, but to achieve greatness you need to do hard things.”
As for the layoffs, Stinner said he sees the Microsoft cuts as a move that all companies need to make to continue to thrive in the work at home era precipated by the pandemic. “I know Microsoft is laying off some employees, taking a big write down, and closing some offices in the Seattle area. That is no different than any other Fortune 500 company adapting to a new model of work from anywhere. To me this headcount reduction is just natural attrition and a change in the way they do business. I don’t see that as a problem. If you are a company and you change direction there are going to be some people that get new opportunities and some people that get pink slips that are released into the economy. The people who want to complain about this are the pessmists of society and not the abundance mindset thinkers.”
US itek continues to see strong growth in its Microsoft business, with Microsoft 365 and Azure sales up 42 percent in 2022, said Stinner. He expects Microsoft 365 sales and Azure sales to be up anther 40 to 60 percent this year. “Microsoft is the fastest growing part of my MSP business,” he said. “I couldn’t feel more confident about my future with Microsoft.We continue to see workloads from small businesses moving into Azure. I see stubborn small business owners who in the past didn’t fully embrace cloud now fully embracing cloud.”
Stinner said he moved 20 percent of his MSP customer installed base from on premise servers to Microsoft 365 and Azure in 2022 and expects another 30 percent to make the move in 2023. That will bring the total number of his customers that have moved to Microsoft 365 and Azure to 75 percent.
Stinner said he sees the move to Microsoft 365 and Azure as a natural evolution of the Microsoft partner model. “To me this is the natural progression of all the infrastructure the channel has delivered for decades,” he said.