Microsoft is considering a multi-billion-dollar investment in artificial intelligence company OpenAI, the maker of ChatGPT (Generative Pre-trained Transformer), as it cuts down 10,000 jobs in the latest round of staff layoff
Microsoft chief executive Satya Nadella, breaking the news in a memo to staff, said that while customer spending had grown during Covid, more people were now choosing to “exercise caution”.
According to him, many parts of the world were in a recession or anticipating one, while “at the same time, the next major wave of computing is being born, with advances in AI”.
He, however, said the firm would continue to hire in key areas.
Read also: OpenAI, Microsoft to challenge Google with ChatGPT-powered Bing
The layoff will affect 5% of its global staff
Microsoft’s layoff will affect up to 5% of its global workforce and cost the business $1.2bn (£972m) in severance and reorganisation costs.
According to reports, Microsoft is considering a $10bn investment in the company behind ChatGPT, the chatbot that’s not only captivated the millions of people who have tried it out but is also predicted by some experts to be the future of search.
How Microsoft Layoffs Affect the Company And Investors
According to Forbes, Microsoft’s stock price fell after the announcement of 10,000 layoffs, following the market’s downward trend for the day. This isn’t surprising since the day saw many companies lose value. Plus, Microsoft admitted that the layoffs would cost the business about $1.2 billion in severance and other costs.
The question that investors need to consider is where Microsoft goes from here. Cutting 10,000 jobs, equal to about 5% of its workforce, gives Microsoft significant savings on wages and benefits. If it succeeds at cutting staff that work on less profitable products and focusing its efforts on areas of growth, this could be a strong purchase opportunity for investors.
On the other hand, this could be the first sign of a continued downward trend for the company. Though many tech firms have reduced their headcount recently, major competitor Apple has yet to announce layoffs. Microsoft also faces stiff competition in areas like cloud technology, which could be challenging to overcome.
Other tech layoffs
Hundreds of tech firms, including some of the sector’s biggest names like Amazon and Instagram-owner Meta, have revealed lay-offs in recent weeks.
At the start of this year, Amazon announced that it planned to cut more than 18,000 jobs because of “the uncertain economy” and rapid hiring during the pandemic.
In November, Meta announced that it would cut 13% of its workforce, a total of 11,000 employees.
Jason Wong, a tech industry analyst with consultants Gartner, warned against assuming redundancies in “enterprise” businesses like Microsoft and Amazon happened for the same reasons as the cuts by big social media firms, some of which had faced additional challenges because of “where they intend to take the business”.
In the case of Twitter, that was moving to “a model away from pure advertising”, and for Facebook, he pointed to its pursuit of the metaverse.
Why tech companies are forced to make cuts
There are many reasons that tech companies have been forced to make cuts, including rising interest rates. Technology companies are often viewed as volatile and reliant on borrowed money or other influxes of capital. Some, like Uber, have yet to turn a significant profit at all.
With rates rising, investors have more appealing options that are less risky than tech firms.
Experts also believe that tech companies over-expanded during the pandemic as people became more reliant on technology to accomplish tasks. As pandemic fears have receded and businesses reopened, tech payrolls are higher than they need to be to keep operations running.
Pandemic boom
Like other tech companies that boomed during the pandemic, Microsoft’s workforce grew by roughly 40,000 between June 2021 and June 2022, when it reported having about 221,000 full-time employees, including 99,000 outside the US.
Microsoft’s business boomed during the pandemic, fuelled by the increase in remote work and other online activity.
As business slowed last year, the firm embarked on a series of job cuts.
The latest 10,000 are expected to be completed by the end of the third quarter of 2023.
The memo said some staff would be notified immediately.
More than 1,000 tech companies laid off 154,336 employees in 2022 alone, according to Layoffs.fyi which tracks redundancies.
This year, including the latest Microsoft losses, the site says 26,061 tech sector employees have already been made redundant.