Microsoft to lay off 3% of workforce

Microsoft announced it has begun laying off about 6,000 workers, nearly 3% of its entire workforce and its largest job cuts in more than two years. A number of factors appear to be driving the decision including AI investment and a reduction in management layers, though Microsoft has not been explicit as to exactly where the cuts will fall.

The tech giant said the layoffs will be across all levels, teams and geographies but the cuts will focus on reducing the number of managers. Hard hit was its home state of Washington, where Microsoft informed state officials it was cutting 1,985 workers tied to its Redmond HQ. The move follows a smaller round of performance-based layoffs in January, but the 3% cuts will be Microsoft's biggest since early 2023, when the company cut 10,000 workers, almost 5% of its workforce, joining other tech companies that were scaling back their pandemic-era expansions. Microsoft employed 228,000 full-time workers as of last June, about 55% of those workers were in the US.

Underperformance of the Microsoft business is a cause that can certainly be ruled out, with the business delivering another solid performance in Q3, with revenue up by 13% yoy. AI demand continues to power Azure growth, with a 16 percentage point contribution to growth being attributed to AI services. (See - Microsoft reports solid Q3 and strengthens European digital commitments). The company’s chief financial officer, Amy Hood, said on an April earnings call that the company was focused on “building high-performing teams and increasing our agility by reducing layers with fewer managers”. She also said the headcount in March was 2% higher than a year earlier, and down slightly compared with the end of last year.

Investment in AI tooling will have also had some impact on the cuts, though it appears investment in new AI initiatives, not the AI technology itself is driving the re-organisation. CEO Satya Nadella has said the company will spend $80bn in fiscal year 2025 on AI-related efforts, and with that level of capital investment, along with the current economic climate, layoffs were perhaps an expected results.

For Microsoft this is just a part of doing business, but for those employees, and the many like them across the market who have found themselves in similar situations recently, it will be difficult blow. We have heard for some time from government and businesses that AI will be a force for good, that it will be a net positive which will not only drive productivity higher but also create new jobs. However, the results of AI adoption so far are largely showing the contrary and time will tell whether the current AI advances will really drive overall productivity higher, or if it’s just another cost cutting exercise in disguise.

Posted by: Simon Baxter at 09:09