Microsoft layoffs a 'rip the band-aid off' moment: Analyst Dan Ives

Microsoft (MSFT) announced on Wednesday that it’s cutting 10,000 jobs because the tech giant contends with slowing PC and cloud sales. But in response to at the least one analyst, the layoffs are a proactive move as Microsoft and its Big Tech counterparts are forced to reckon with the unsustainable growth they saw in the course of the pandemic.

“It was a rip-the-Band-Aid-off moment from Nadella and Microsoft, and we’re seeing it across tech,” Wedbush analyst Dan Ives told Yahoo Finance Live. “These corporations were spending like 1980’s rock stars at a pace that was unsustainable.”

Big tech corporations like Microsoft, and Amazon (AMZN), and Meta (META), which laid off 18,000 and 11,000 employees, respectively, rapidly expanded their staff in the course of the pandemic to maintain up with demand. Between June 2021 and June 2022, Microsoft added some 40,000 jobs. Meta, meanwhile, added 13,366 jobs between Dec. 2020 and Dec. Amazon added 310,000 in the identical time-frame.

While Microsoft’s layoffs will lead to a $1.2 billion charge, equal to about $ -0.12 per share, Ives says the move was prudent.

“I view it as a proactive, smart move that we’re going to see across tech. Ultimately, I feel as we go into earnings, that is going to be a positive that basically preserves margins,” he said.

As for whether the layoffs are a harbinger of more trouble ahead of Microsoft, Ives said he believes the corporate is probably going in a greater position than most others.

Microsoft CEO Satya Nadella listens to an issue on the annual Microsoft shareholders meeting Wednesday, Nov. 30, 2016, in Bellevue, Wash. (AP Photo/Elaine Thompson)

“They’re going to double down on cloud, they’re going to be aggressive with innovation,” he said. “We’ve seen by way of OpenAI and another technology partners…Nadella goes to be aggressive and spend, and I feel hire in areas where strategically that’s where Microsoft goes to be for the approaching years.”

In the intervening time, nevertheless, Microsoft is coping with a decline in cloud revenue growth. In October, the corporate reported that it expects Q2 cloud growth to diminish. And in Q1, cloud growth declined from 31% year-over-year in 2021 to twenty% year-over-year.

PC sales are also slumping as consumers who purchased latest systems in the course of the pandemic haven’t any need for brand spanking new ones and businesses hold off on buying latest machines at a time of high inflation and rates of interest.

Outside of its cloud and PC sales performance, Microsoft can also be working to make sure the success of its $69 billion acquisition of Activision Blizzard. The deal is currently facing pushing back within the U.S., U.K., and E.U., but Ives says he believes it’s going to undergo.

“I feel Microsoft does ultimately grow to be victorious there,” he explained. “That’s why they’re not backing down…That’s and asset, and I consider there’s going to be more M&A from Microsoft and from others in Big Tech.”

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