Microsoft to layoff more than 6,000 employees, says it is for the company's success: Full story in 5 points
Microsoft has announced that it is cutting 3 per cent of its workforce, which is more than 6,000 of its employees. While job cuts have become fairly common across tech companies over the past two years, this round is particularly significant for Microsoft. It's the company's biggest reduction in headcount since early 2023, when it laid off 10,000 employees in one of its most dramatic shake-ups to date. The company reportedly told The Verge that the layoffs are a way to make 'organisational changes necessary to best position the company for success in a dynamic marketplace'.advertisementHere is everything that is happening at Microsoft, in 5 quick points.Trimming down while scaling upSo why is Microsoft laying off thousands of employees while also expanding rapidly in areas like artificial intelligence (AI)? The answer lies in what many companies call strategic realignment. According to a statement from the company, the layoffs are part of 'organisational changes necessary to best position the company for success in a dynamic marketplace,' says the company. In simpler terms, Microsoft is trying to reshape itself for the future, one that is increasingly defined by AI and cloud computing. But building that future doesn't come cheap.
The company is investing tens of billions of dollars into data centres and infrastructure to support its growing AI tools and services. Reports suggest that Microsoft's capital spending this year alone could touch a staggering $80 billion, a large part of which is earmarked for AI-related expansion. These investments are essential to remain competitive with the likes of Google, Amazon, and Meta, but they come with a trade-off: higher operating costs and tighter profit margins.Why the layoffs now?advertisementOne big change internally is Microsoft's attempt to 'flatten' its corporate structure. During a recent earnings call, Microsoft chief financial officer Amy Hood hinted at cutting down on management layers, suggesting the company is looking for more direct and nimble decision-making. While the details of which teams are being impacted haven't been made public, reports suggest that employees across various levels and departments, including LinkedIn and Microsoft's international offices, are affected.Performance cuts at MicrosoftIn addition, the company had already begun performance-based job cuts earlier this year. But this new round is much broader and unrelated to performance. It's more about making Microsoft leaner and more focused on its core priorities.Not just about software any moreAlthough Microsoft is still best known for its software and Windows operating system, its business has evolved massively. Today, Microsoft is a cloud-first, AI-obsessed tech powerhouse. Its cloud division, Azure, continues to grow, but even there, profit margins are beginning to shrink. In the most recent financial quarter, Microsoft Cloud's profit margins dropped from 72 per cent to 69 per cent year-over-year, a sign that even high-performing divisions aren't immune to cost pressures.And there is a possibility that the company is trying to make up for the enormous cost of AI expansion by reducing headcount. "We believe that every year Microsoft invests at the current levels, it would need to reduce headcount by at least 10,000 in order to make up for the higher depreciation levels due to their capital expenditures," Technology analyst Gil Luria at DS Davidson told Reuters.Not an isolated moveMicrosoft isn't alone. Across Silicon Valley, companies are betting big on AI while quietly trimming staff. Google, Meta, and Amazon have all laid off thousands of employees over the past two years, even as they ramp up investments in generative AI, cloud services, and new data centres.
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