Microsoft (MSFT) shares slumped lower Wednesday after the cloud and tech giant said it would slash around 5% of its global workforce, and take a $1.2 billion charge against its second quarter earnings, as it looks to 'align costs' with customer demand.
Microsoft said the cuts, which it expects to conclude in March, will result in the loss of around 10,000 jobs and a 12 cent hit to December quarter earnings, but added that it would continue to invest in areas such as AI and other advanced technologies. The group said in October that it only forecast "minimal" headcount growth over the final three months of the year.
Last week, reports suggested Microsoft is looking to take a major stake in OpenAI, an artificial intelligence group founded by Tesla (TSLA) CEO Elon Musk. The investment would mark the second time Microsoft has pumped cash into OpenAI, following a $1 billion infusion in 2019, and other media reports has suggested the ChatGPT could be used in a new version of the tech giant's Bing search engine.
"We’re living through times of significant change, and as I meet with customers and partners, a few things are clear," said CEO Satya Nadella. "First, 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. 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."
"At the same time, the next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform," he added.
Microsoft shares were marked 1.34% lower in Wednesday afternoon trading to change hands at $237.14 each., extending the stock's six-month decline to around 7%.
The tech giant's job cuts follow big headcount moves from Amazon (AMZN) and Meta Platforms (META) late last year, with the former unveiling plans to reduce its global workforce by around 18,000 and the latter planning job cuts of around 11,000.
Earlier this month, the world's biggest enterprise software group Salesforce (CRM) also unveiled plans to cut around 10% of its global workforce amid a restructuring strategy under stand-alone CEO Marc Benioff.
"We are seeing the clock strike midnight for the tech sector after a decade of hyper growth and now major layoffs are being seen at Microsoft Salesforce, Meta, Amazon, among many others across the Valley," said Wedbush analyst Dan Ives, who carries an 'outperform' rating with a $290 price target on the stock. "This is a rip the band-aid off moment to preserve margins and cut costs in a softer macro, a strategy the Street will continue to applaud as management teams navigate this Category 5 near-term economic storm."
Microsoft will publish earnings for the three months ending in December, its fiscal second quarter, on January 23. Prior to today's announcement, analysts were looking for a bottom line of $2.30 per share on revenues of $52.51 billion.
For the three months ending in September, overall group revenues rose 10.5% to $50.1 billion, just ahead of Street forecasts, while its bottom fell 15% to $17.3 billion.
Microsoft said revenues for Azure, its flagship cloud division, rose 35% from last year, slowing notably from its prior quarter gains as companies pulled back on investment spending. That rate will slow further into the three months ending in December, Microsoft's fiscal second quarter, even after stripping away the impact of the stronger U.S. dollar.
Microsoft earned just over half of its $168.1 billion in 2021 revenues from overseas markets, according to the group's latest annual report, with international growth outpacing domestic by around 3%, making gains in the U.S. dollar increasingly challenging when it comes time to repatriate.
The group also forecast lower-than-expected revenues from its umbrella 'intelligent cloud' division, which it sees between $21.25 billion and $21.55 billion, as well as its personal computing business, with a forecast range of between $14.5 billion and $14.9 billion.
