Microsoft's profit drops 12% to $16.4B amid mass layoffs

Microsoft profit drops 12% to $16.4B and revenue grows at its slowest pace in six years – days after the company laid off 10,000 workers as ‘tech wreck’ sweeps Silicon Valley

  • Microsoft reported a quarterly profit of $16.4B on Tuesday, down 12% in a year
  • Sales rose just 2% in the three months to December, the smallest gain since 2016
  • Company says economic concerns are impacting customer spending on cloud
  • Last week, Microsoft announced 10,000 job cuts in the latest tech layoffs 

Microsoft on Tuesday reported a 12% drop in profit for the last quarter, reflecting the growing economic uncertainty that led to its decision to lay off 10,000 workers last week.

The company reported earnings of $16.43 billion for the quarter that ended in December, while revenue rose 2% to $52.7 billion, marking Microsoft’s slowest sales growth in six years.

Microsoft last week blamed deteriorating economic conditions and ‘changing customer priorities’ for its decision to cut nearly 5 percent of its global workforce. 

It’s one of a number of huge tech companies, including Google, Amazon, Salesforce, and Facebook parent Meta, to announce sweeping layoffs in recent months.

Microsoft on Tuesday reported a 12% drop in profit for the last quarter, reflecting the growing economic uncertainty that led to recent layoffs. Pictured: CEO Satya Nadella

Microsoft stock initially rose more than 4 percent in extended trading, after its adjusted earnings beat expectations, but the gains were erased after executives warned revenue growth in its Azure cloud-computing business will slow down this quarter.

Azure cloud product revenue rose 31% last quarter, in line with estimates compiled by Visible Alpha. It has steadily grabbed market share from leader Amazon Web Services. 

Microsoft’s cloud business is under the spotlight again following the viral success of chatbot ChatGPT, which answers general questions in plain language using artificial intelligence. 

The bot is a creation of the startup OpenAI, in which Microsoft is investing heavily and which requires intense cloud computing services.

‘There’s a variety of ways that we can bring that technology either in specific offerings or to improve existing offerings,’ said Brett Iversen, Microsoft’s head of investor relations, referring to OpenAI. 

He said revenue from OpenAI-related businesses would show up in revenue for Microsoft’s cloud service Azure in the future. 

Microsoft stock initially rose more than 4 percent in extended trading, after its adjusted earnings beat expectations, but the gains were erased on cloud growth fears

The company reported earnings of $16.43 billion for the quarter that ended in December, while revenue rose 2% to $52.7 billion, marking Microsoft’s slowest sales growth in six years

During the earnings call, Microsoft CEO Satya Nadella said it was too early to separate out AI contribution from the Azure cloud workloads.

Excluding one-time items such as $800 million to pay severance to laid-off employees, the company based in Redmond, Washington, said it earned $2.32 a share, which topped Wall Street expectation for adjusted earnings of $2.29 a share. 

Microsoft’s personal computing business, centered on its Windows software, was widely expected to continue a deterioration that began earlier last year due to economic uncertainties and crimped demand. 

Quarterly sales from that segment dropped 19% to $14.24 billion, the company said Tuesday.

Microsoft is just one of several tech companies who have made major cuts in recent months

Microsoft gets licensing revenue from PC manufacturers who install its Windows operating system on their products.

Market research firm Gartner reported that worldwide PC shipments in the October-December quarter declined 28.5% from the same period of 2021, the steepest quarterly decline since Gartner began tracking the market in the 1990s.

Among the factors reducing consumer demand for PCs were increased inflation, higher interest rates, the expectation of a global recession and the fact that many people already bought new computers during the COVID-19 pandemic, Gartner said.

With a weak PC market, analysts were closely watching for results from Microsoft’s other big business segments – namely, its cloud-computing division.

Tech job cuts – including mass layoffs at Meta and Twitter – are accelerating

In recent months, a slew of tech companies have announced cost-cutting measures, with Amazon, Apple and Google-parent Alphabet all announcing hiring slowdowns or freezes.

For the tech sector, the pandemic boom has turned to a post-pandemic bust, as rising interest rates batter share prices and inflation cuts into profits.

The sector shed 9,587 jobs in October, the highest monthly total since November 2020, according to data from consulting firm Challenger, Gray & Christmas cited by Bloomberg. 

Total job cuts announced by US-based employers jumped 13 percent to 33,843 in October, the highest since February 2021, a report said. 

Meta

The Facebook-parent said in November it would cut 13 percent of its workforce, or more than 11,000 employees, in one of the biggest tech layoffs this year as it grapples with a weak advertising market and mounting costs.

Meta said it would cut 13 percent of its workforce, or more than 11,000 employees, in one of the biggest tech layoffs this year

Like its peers, Meta aggressively hired during the pandemic to meet a surge in social media usage by stuck-at-home consumers. 

But but the pandemic boom-times have petered out as advertisers and consumers pull the plug on spending in the face of soaring costs and rapidly rising interest rates.

After plunging billions into CEO Mark Zuckerberg’s Metaverse vision with little to show for it, Meta has been faced with rising costs and shrinking profits.

Meta, once worth more than $1 trillion, is now valued at $256 billion after losing more than 70 percent of its value last year alone. 

‘Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected,’ Zuckerberg said in a message to employees, according to Reuters.

‘I got this wrong, and I take responsibility for that.’

Zuckerberg delivered the grim news about job cuts on a call with hundreds of Meta executives

On a short call, a red-eyed Zuckerberg addressed employees but took no questions. 

He stuck to a script that closely followed the wording in the morning’s blogpost and called the increased investments in e-commerce a ‘big mistake in planning.’

Twitter

Twitter laid off half its workforce across teams ranging from communications and content curation to product and engineering following Elon Musk’s $44 billion takeover.

The cutbacks affected roughly 3,700 employees, who learned their fate by email last week. 

However, Bloomberg reported Twitter was reaching out to dozens of employees who lost their jobs, asking them to return.

Twitter laid off half its workforce across teams ranging from communications and content curation to product and engineering

Musk previously said there was no other choice but to impose mass layoffs as the company loses hundreds of millions of dollars every year and needs a financial overhaul

Salesforce

In January, cloud-based software company Salesforce announced it will layoff 10 percent of its employees or about 8,000 workers.

CEO Marc Benioff cited a rough period for the tech sector as well as over-hiring during COVID-19 leading to the decision. 

Several weeks ago, it quietly laid off hundreds of employees.

‘Our sales performance process drives accountability. Unfortunately, that can lead to some leaving the business, and we support them through their transition,’ a Salesforce spokesperson told CNBC in a statement several weeks ago.

Salesforce had 73,541 employees at the beginning of last year – it is the largest employer in the San Francisco area. 

The company said in an August filing that headcount rose 36 percent in the past year ‘to meet the higher demand for services from our customers.’ 

Amazon

Amazon said it would layoff 18,000 corporate and technology jobs what will be the largest job cuts in the company’s history.

The move comes as the company reportedly lost $1trillion over the year after its stock plummeted from a high during the pandemic. 

If the company goes through with its proposal to cut 10,000 jobs, it would lose about 3 percent of Amazon’s corporate employees

The move comes after the company put a hiring freeze in place, affecting major teams including Prime Video, Alexa and Amazon Fresh.

‘We’re facing an unusual macroeconomic environment, and want to balance our hiring and investments with being thoughtful about this economy,’ Beth Galetti, senior vice president of people experience and technology at Amazon, wrote in a memo, which was seen by the Wall Street Journal.

Intel

Intel Corp’s CEO Pat Gelsinger told Reuters ‘people actions’ would be part of a cost-reduction plan. 

The chipmaker said recently it would reduce costs by $3 billion in 2023, then ramping that up to $10 billion by 2025.

The adjustments would start in the fourth quarter, Gelsinger said, but did not specify how many employees would be affected.

Some Intel divisions, including the sales and marketing group, could be cut by up to 20 percent, Bloomberg News reported last month, citing people with knowledge of the situation.

Chipmaker Intel is reportedly planning major layoffs, likely numbering in the thousands, in the face of a slowdown in the personal computer market

The company had 113,700 employees as of July, when it slashed its annual sales forecast by $11 billion after missing estimates for second-quarter results.

Intel, based in Santa Clara, California declined to comment on the job cuts when reached by DailyMail.com in October. 

Intel has been battered by shifting market trends, including the decline of traditional personal computers as smartphones and tablets rise in popularity.

Last quarter, global PC shipments, including desktops and laptops, declined another 15 percent from a year ago, according to IDC. 

Microsoft

Microsoft in January initiated layoffs of 10,000 employees, citing slowing customer demand and a negative economic environment.

‘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,’ CEO Satya Nadella said in a company memo.

The layoffs affected nearly 5 percent of Microsoft’s global workforce. 

Microsoft previously laid off under 1,000 employees across several divisions last year, according to Axios.

In a statement, Microsoft executives said: ‘Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly.

Microsoft laid off under 1,000 employees across several divisions last month, according to Axios

‘We will continue to invest in our business and hire in key growth areas in the year ahead.’

Microsoft executives previously announced in July that it was laying off less than 1 percent of its workforce and significantly slow hiring, as its revenue fell short of investor expectations.

The company recorded only $51.9 billion in revenue during the second quarter of the year, but was expected to rake in $52.4 billion.

It had previously recorded blockbuster growth during the COVID pandemic, when consumers and businesses turned to its products as they shifted to a work-from-home model.

Lyft

Ride-hailing firm Lyft said it would lay off 13 percent of its workforce, or about 683 employees, after it already cut 60 jobs earlier this year and froze hiring in September.

Lyft said in a regulatory filing it would likely incur $27 to $32 million in restructuring charges related to the layoffs. 

‘We are not immune to the realities of inflation and a slowing economy,’ Lyft’s founders wrote in the memo to staffers. 

Ride-hailing firm Lyft said it would lay off 13 percent of its workforce, or about 683 employees, after it already cut 60 jobs earlier this year

The company’s share price has fallen 76 percent since the beginning of the year and currently stands at around $10, compared to nearly $45 in January.

Announcing the job cuts in a memo seen by the Wall Street Journal, Lyft founders John Zimmer and Logan Green told staff: ‘There are several challenges playing out across the economy.

‘We’re facing a probable recession sometime in the next year and rideshare insurance costs are going up.

‘We worked hard to bring down costs this summer: we slowed, then froze hiring; cut spending; and paused less-critical initiatives.

‘Still, Lyft has to become leaner, which requires us to part with incredible team members.’

Lyft has about 4,000 employees, not including its drivers.

Spotify

The music streaming service said on January 22 it plans to cut 6% of its workforce, an estimated 588 employees from its 9,800 full time staff. 

Spotify said it will incur about $38million in severance-related charges.

The company, whose CEO is Daniel Ek, said its chief content and advertising business officer Dawn Ostroff will also depart.

Spotify said on January 22 it plans to cut 6% of its workforce, an estimated 588 employees

Apple 

Though Apple has not yet announced any major layoffs, CEO Tim Cook told CBS Mornings that it is slowing some hiring as well.

‘What we’re doing as a consequence of being in this period, is we’re being very deliberate in our hiring,’ he said. ‘That means we’re continuing to hire, but not everywhere in the company are we hiring.’

At the same time, though, Cook said ‘we don’t believe you can save your way to prosperity.”

‘We think you invest your way to it,’ he said.

 

 

 

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