Microsoft CEO Satya Nadella announced today that the company will lay off 10,000 employees as part of an effort to "align its cost structure with revenue and customer demand" (opens in new tab).

This is a relatively small slice of Microsoft's total workforce, but a surprising number of layoffs: in a memo released today, CEO Nadella said that the layoffs represent less than 5% of Microsoft's workforce, which is estimated to be approximately 221,000 worldwide ( (Open in new tab).

Some employees will be notified of their layoffs today, but the job cuts will continue through the third quarter of Microsoft's fiscal year 2023, which ends March 31. Microsoft will spend $1.2 billion this fiscal quarter "related to severance costs, hardware portfolio changes, and lease consolidation costs associated with densification across the workspace."

Where these cuts will come from has not yet been disclosed. One Bloomberg (open in new tab) report cites sources saying that the company's engineering department is being targeted, and another (open in new tab) report says that employees at Starfield developer Bethesda Softworks and Halo studio 343 Industries are also being laid off, the report quotes sources as saying. Gary Waliczek, principal engineer at Xbox, also said that the games division will be affected by the deleted tweets.

Nadella attributed the need for layoffs to a slowdown in digital spending that accelerated in the first few years of the Covid-19 pandemic and broader industry concerns about the looming recession.

"These are the hard choices we have made throughout our 47-year history to remain a consequential company in an industry that is unforgiving of those who do not adapt to platform shifts," Nadella said.

The job cuts come a year after Microsoft announced plans to acquire Activision Blizzard, which employs nearly 10,000 people, for $68.7 billion. The deal is currently going through a regulatory wrangle with Sony and others (open in new tab) who are trying to prevent Microsoft from owning an even larger slice of the gaming industry after the Bethesda acquisition.

Microsoft will announce its second quarter results for fiscal year 2023 on January 24. Microsoft earned $50.1 billion in the first three months of the fiscal year (opens in new tab), bringing in a net profit of $17.6 billion.

Including equity compensation, Nadella earned $54.95 million in 2022. The next highest paid executive was CFO Amy Hood, who received $26.3 million.

Microsoft is not the only major tech company to announce major layoffs in recent months; in November 2022, Facebook's parent company Meta ($4.4 billion in net income for the third quarter of FY2022) announced plans to lay off more than 11,000 employees (opens in new tab), In January, Amazon ($2.9 billion in net income for the third quarter of fiscal year 2022) announced it would cut more than 18,000 employees by early 2023 (opens in new tab).