Facing macroeconomic uncertainty and slowing growth, Microsoft has confirmed that it is laying off employees working on its HoloLens, Surface laptop and Xbox products, as reports surface that it will be cutting 100 employees working for its industrial metaverse unit - essentially closing down that team.

The layoffs are part of a plan to lay off 10,00 workers announced by CEO Satya Nadella earlier this month.

The move to cut HoloLens jobs and the reported layoffs at its industrial metaverse unit come in the wake of recent Microsoft efforts to expand initiatives in what it calls mixed reality for enterprise customers - which industry analysts consider a nascent but promising market. But a wavering global economy and a decline in revenue growth is weighing heavily on the tech giant.

"Many large technology companies have been making adjustments such as layoffs to balance their numbers and, in this scenario, experimental or futuristic technology will take a back seat," said Sharath Srinivasamurthy, associate vice president of research at analyst firm IDC. "These companies would rather channel their investments towards initiatives that are proven or matured rather than investing in something that is too futuristic."

In its latest quarterly report, issued last month, Microsoft said cloud demand was waning, and reported a rise in net income of only 1% for its second quarter of fiscal year 2023.

Cuts to HoloLens, Surface, and Xbox jobs were confirmed by Microsoft Friday in the wake of a  report from Bloomberg. The move to cut the industrial metaverse team, created in October, was first reported by The Information.

Microsoft declined to specify how many jobs would be cut this week, but a Worker Adjustment and Retraining Notification (WARN) from Washington state Friday noted that Microsoft had reported that 617 employees would be laid off in Redmond, Bellevue and Issaquah.

Microsoft says it is commited to industrial metaverse

In response to a request for comment, a spokesperson for Microsoft emailed a statement: "While we don't comment on specific staffing details, Microsoft remains committed to the industrial metaverse.  We are applying our focus to the areas of the industrial metaverse that matter most to our customers and they will see no change in how they are supported. We look forward to sharing additional information in the future." 

Adoption of metaverse technology is just beginning, according to Srinivasamurthy. Several tech companies, including Microsoft, jumped on the bandwagon after Facebook signaled its commitment by changing its name to Meta in October 2021.  

"Metaverse or the ecosystem supporting it need to undergo more technological advancement. There is room to improve rendering of graphics and form factors of wearables such as augmented reality (AR) and virtual reality (VR) headsets," said Srinivasamurthy.

The industrial metaverse unit, according to The Information, was created to work on building software interfaces to operate control systems of electrical power plants, industrial robotics and transportation networks.

These applications, according to an IDC report, make good use of metaverse and related technologies. However, Srinivasamurthy said that these use cases may have been seeing slump in demand by customers, and that related enterprise projects may have been put on hold.

Analysts see metaverse potential for enterprises

Other analysts also said they thought that Microsoft would gain more traction with its metaverse products among businesses - specifically for enterprise collaboration -  rather in the consumer arena.

"Looking at metaverse adoption across the segments, B2B platforms have seen higher adoption," said Anushree Verma, an analyst at tech market research firm Gartner, adding that consumer use cases have been limited to gaming or virtual try-ons in retail.

"But, if you look at enterprise use cases, workforce or new hires training and employee engagement are some of the top use cases across the industry. Therefore, it makes complete sense to strategize on the enterprise side," Verma said.

Microsoft's reported move to cut staff working on HoloLens and in its industrial metaverse team is something of a surprise, coming just days after the company announced its intent  to pull the plug on its AltspaceVR platform and pivot its augmented reality,  virtual reality and metaverse efforts from the consumer to the enterprise side.

Microsoft has also brought technology from its metaverse product Mesh to Teams in an effort to enable better workplace collaboration across multiple devices.  

Last month it also said that it was using Microsoft Mesh to support its AR products initiatives at the enterprise level.  

(Additional reporting by Marc Ferranti.)