microsoft layoffs

 

Microsoft Lays Off About 3% Of Workers As Company Adjusts For AI Business

In a move signaling a significant strategic pivot, Microsoft today announced a reduction of its workforce by more than 6,000 employees, representing about 3% of its total headcount.

While such news often triggers concerns about automation and job displacement due to artificial intelligence, the company indicated a different rationale: This adjustment is a calculated step to optimize resources and ensure continued robust investment in Microsoft’s burgeoning AI platform. The decision to streamline certain operations (and create bottom-line impact) is designed to free up capital to drive the company’s AI-centric strategy.

“We have made huge investments in AI because we are optimistic about what it can do to help people, industry and society, and because we’re committed to bringing technology and people together to realize the promises of AI responsibly," the company has previously shared on its website.

Microsoft Moving Towards AI

Reuters reports that it is this investment in new AI initiatives, not the AI technology itself, that has caused the company to reduce its staff. However, CEO Satya Nadella told a Silicon Valley audience that “maybe 20, 30% of the code that is inside of our repos today, and some of our projects, are probably all written by software.” In that same conversation, on stage with Meta CEO Mark Zuckerberg, Nadella described his vision for Microsoft as a ”distillation factory", where they would take large, general purpose AI models and shrink them down into smaller, specialized and even task-specific models. Nadella has often spoken of the “democratization of AI” and his plans for the technology. Indeed, efforts are underway to target businesses with AI-powered tools and platforms, as the company embeds AI capabilities into mainstay products like Microsoft 365, Azure, and Dynamics365.

And Wall Street has responded in a positive way. Microsoft’s gross profit margins have consistently been in the high 60’s-low 70% range over the last few years, making the stock a favorite for institutional investors. On Monday, Microsoft shares ended trading at $449.26, the highest price so far this year. (They closed at a record $467.56 last July). The company recently reported quarterly revenues of $70.07 billion, beating Wall Street expectations. For comparison, Nadella has said the company will spend $80 billion in fiscal year 2025 on AI-related efforts.

Microsoft began laying off about 6,000 workers Tuesday, nearly 3% of its entire workforce and its largest job cuts in more than two years as the company spends heavily on artificial intelligence.

Hard hit was the tech giant’s home state of Washington, where Microsoft informed state officials it was cutting 1,985 workers tied to its Redmond headquarters, many of them in software engineering and product management roles.

Microsoft said the layoffs will be across all levels, teams and geographies but the cuts will focus on reducing the number of managers. Notices to employees began going out on Tuesday.

The mass layoffs come just weeks after Microsoft reported strong sales and profits that beat Wall Street expectations for the January-March quarter, which investors took as a dose of relief during a turbulent time for the tech sector and U.S. economy.

“I think many people have this conception of layoffs as something that struggling companies have to do to save themselves, which is one reason for layoffs but it’s not the only reason,” said Daniel Zhao, lead economist at workplace reviews site Glassdoor. “Big tech companies have trimmed their workforces as they rearrange their strategies and pull back from the more aggressive hiring that they did during the early post-pandemic years.”