Microsoft Corporation (NASDAQ:MSFT) has confirmed earlier reports that the tech giant will lay off 10,000 staff in the latest round of redundancies to hit the sector.
The cuts represent just under 5% of its total headcount, while the technology company said it will take a $1.2bn charge due to severance costs.
In a memo to staff, Microsoft chief executive Satya Nadella said the company would also be making "changes to our hardware portfolio" as part of the cutbacks, as well as cutting back on office space as it creates "high density across our workspaces".
Nadella said that while customer spending had grown during Covid, more were now choosing to "exercise caution". He added the firm would continue to hire in key areas.
Wedbush analyst Daniel Ives said it was “not a surprising move as Nadella & Co. needed to cut sooner rather than later in non-strategic areas with a softer backdrop now on the horizon.”
He forecast the group would continue to “strategically spend on cloud, M&A (Activision), key innovation bets (ChatGPT), and stay in the left lane of innovation while trimming non-strategic areas (hardware, etc.).”
But, he added, “we are seeing the clock strike midnight for the tech sector after a decade of hyper-growth”.
“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” he concluded.
The Wedbush analyst said the $1.2bn charge would represent a $0.12 negative impact to EPS.
Wedbush has an ‘outperform’ rating and $290 price target on Microsoft shares, which currently trade at $239.69, down 0.3% on the day.