One of the mainstays in business application software, Microsoft (NASDAQ:MSFT) attracted significant attention this morning when it announced a structural adjustment, which includes both layoffs in certain segments as well as a hiring uptick in other roles. Such measures are occurring amid increasing job cuts in the broader tech sector along with rising fears of a recession. MSFT stock slipped about 2.5% in late morning trading.
Per a Bloomberg report, the pink slips will affect less than 1% of Microsoft’s 180,000-person workforce. The impacted sectors vary, including consulting and customer and partner solutions. Further, the company dispersed the layoffs across geographies.
In an emailed statement, Microsoft stated, “Today we had a small number of role eliminations. Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly.” In addition, the company noted, “We will continue to invest in our business and grow headcount overall in the year ahead.”
According to Bloomberg, in recent years, “Microsoft has typically announced job cuts shortly after the July 4 holiday in the US as it makes changes for the new fiscal period. The company said the layoffs were not spurred by the worsening economic picture, but in May it also slowed hiring in the Windows and Office groups.”
MSFT Stock in the Context of Tech’s Pessimism
While the disclosure clearly affected MSFT stock, it’s important to establish the broader context. Throughout this year, a growing number of companies in the tech sector have likewise distributed pink slips.
Indeed, what’s perhaps most worrying is that, per Crunchbase News, tech layoffs have accelerated as the year progresses. For instance, in January, only three companies reported cutting their workforce: insurance technology (or insurtech) firm Root Insurance, beauty brand Glossier and fitness company Beachbody (NYSE:BODY).
However, by May, the negative momentum really picked up, “with at least 35 U.S.-based tech companies slashing headcount. That number more than doubled in June to 74 companies, or more than half of the companies in Crunchbase News’ Tech Layoffs tracker.”
Interestingly for anyone long MSFT stock, Comparably – a platform that provides compensation data for public and private companies – reported 11% of surveyed Microsoft employees feel insecure. Within this group, 7% feel very insecure.
Why It Matters
Although Microsoft stated for the record the layoffs were not connected to rising recession fears, investors might not perceive the announcement in the same way — hence the downturn in MSFT stock. Essentially, Microsoft is one of the world’s biggest and most important companies. Therefore, any job cuts there are contextually significant.
In addition, the impact to customer solutions suggests at least some pressure from the soaring inflation rate. With both individuals and corporate entities tightening the belt to mitigate the loss of purchasing power, some of this collective force may be turning on the heat in Microsoft’s boardroom.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
