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.
More Layoffs Ahead for Microsoft?
Analyst Gil Luria says that headcount reduction is a natural result of those kinds of capital investment numbers, hinting that more layoffs might be ahead. “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,” Luria said, according to Reuters.
The displaced workforce includes about 1,985 workers in Washington state, where the company is headquartered. Overall, there are 228,000 workers at the company. The layoff news for these laid off workers can’t be easy, as the trend in tech layoffs continues.
Corrected, May 14: An earlier version of this article misstated the number of Microsoft employees likely to be cut; it’s more than 6,000, or less than 3% of the company’s workforce.
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