Microsoft on Wednesday said it would eliminate 10 000 jobs and take a US$1.2-billion charge as its cloud computing customers dissect their spending and the company braces for potential recession.

The layoffs, far larger than cuts by Microsoft last year, pile onto tens of thousands of job cuts across the US technology sector that’s long past its ceaseless growth during the pandemic.

The news is particularly dramatic for Microsoft, a software maker heavily invested in generative artificial intelligence that represents an industry bright spot.

In a note to employees, CEO Satya Nadella said the layoffs, affecting less than 5% of the workforce, would conclude by the end of March, with notifications beginning Wednesday.

The timing corresponds with the date its rival Amazon.com has said more employees will be notified in its own 18 000-person layoffs.

Nadella said customers wanted to “optimise 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”. Another company serving enterprises, Palantir Technologies, said this week that reducing cloud spending was a top-10 priority of its customers.

In addition to severance costs, Microsoft would take a billion-dollar charge from changes to its line-up of hardware products and from consolidating leases “as we create higher density across our workspaces”, Nadella said.

‘Street will applaud’

The charge in the second quarter of fiscal 2023 represents a negative impact of $0.12/share of profit, Microsoft said.

Wedbush Securities analyst Dan Ives said: “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.”

Microsoft shares were up less than 1%.

Nadella said the company would continue to invest capital and talent in strategic areas, like AI and a service offering OpenAI’s ChatGPT, a futuristic chatbot that has captivated Silicon Valley.