Microsoft to Lay Off 10,000 Workers as Slowdown Hits Software Business

In a blog post to employees, Mr. Nadella pointed to the shaky economy, telling employees that companies globally had begun to “exercise caution as some parts of the world are in a recession and other parts are anticipating one.” He added that the company would be taking a $1.2 billion charge in its soon-to-be-announced earnings related to severance costs.

Inside Microsoft, some employees were frustrated that Mr. Nadella was participating in the World Economic Forum in Davos, Switzerland, thousands of miles away from Microsoft’s headquarters, as the layoffs were announced. The night before the announcement, Microsoft hosted an event at Davos in which around 50 people watched a performance by Sting, said people familiar with the event. The theme of the event was sustainability.

Many top tech companies have pivoted to cutting thousands of positions in recent months as the business climate has deteriorated on the back of economic slowdown concerns, high inflation ratesrising interest rates and other factors.

Last year Microsoft had more than one round of layoffs but didn’t announce how many positions it cut. One round, which started in July, affected less than 1% of the company’s total workforce of more than 200,000 people, the company said at the time.

In his note to employees, Mr. Nadella didn’t specify which parts of the company would be affected by the cuts. He said the company would be pulling back in some areas but continuing to hire in strategic areas.

The tech sector had been on a yearslong hiring spree as companies invested in expansion and competed for talent by offering lucrative pay packages. As Covid-19 set in, the pace of hiring accelerated as the companies rode a wave of supercharged demand.

Microsoft was among the tech companies that stepped up hiring in recent years. The company reported 221,000 employees at the end of its fiscal year through June. That was up 22% from the previous year.

The aggressive hiring trend tapered off last year. Tech employers cut more than 150,000 jobs in 2022, estimates Layoffs.fyi, a website that tracks the events as they surface in media reports and company releases.

This month the business-software provider

Salesforce Inc.

said it planned to lay off 8,000 employeesor 10% of its global workforce—the biggest head- count reduction in the company’s history.

Amazon.com Inc. recently said that it was laying off 18,000 people. The e-commerce leader began to notify the employees affected on Wednesday, according to an internal staff memo viewed by The Wall Street Journal. The memo said the company plans to notify those in the U.S. and Canada by the end of the day.

Microsoft’s move comes the week before it is scheduled to announce its latest quarterly earnings. Late last year the Redmond, Wash.-based company said a sharp decline in personal-computer sales and the dollar’s strength were weighing on expansion. In the three months through September, its revenue grew 11% from a year earlier, its weakest increase in more than five years.

The issue of declining PC sales that has been squeezing Microsoft’s Windows business looks to be around for some time. Worldwide shipments were down 29% in the fourth quarter last year compared with the previous year, according to preliminary data from the research firm Gartner Inc. Analysts don’t expect that trend to improve until 2024.

Microsoft shares slid 1.9% Wednesday. They have slipped around 20% over the past 12 months, broadly in line with the tech-heavy Nasdaq Composite Index. Microsoft has fared better than many of the consumer-facing tech leaders.

Meta Platforms Inc.

is down close to 60%, and

Alphabet Inc.

has lost around 30% in the past year. Amazon shares have fallen around 40%.

Photos: Tech Layoffs Across the Tech Industry

Speaking in Davos, before announcing the layoffs, Mr. Nadella said the tech industry has to prepare for tougher times.

“We in the tech industry will have to get more efficient—it’s not about everyone else doing more with less, we will have to do more with less. We will have to show our own productivity gains,” he said.

Microsoft has been enjoying some positive news this year, as it negotiates increasing its investment in the artificial-intelligence startup OpenAI. This week the company announced it was opening up access to OpenAI tools such as the image generator Dall-E 2 and the technology behind ChatGPTwhich can answer questions and write essays and poems.

In his note Wednesday, Mr. Nadella specifically mentioned AI as a priority, calling it “the next major wave of computing.”

—Sebastian Herrera, Sarah Krouse and Sam Schechner contributed to this article.

Write to Tom Dotan at tom.dotan@wsj.com