Microsoft announced on Tuesday (May 13) that it will be cutting nearly 3% of its workforce, approximately 6,000 employees. This move comes as the tech giant heavily invests in artificial intelligence while implementing cost-cutting measures.
This round of layoffs will affect all levels and regions, possibly making it the largest since Microsoft cut 10,000 jobs in 2023. According to CNBC, which first reported the news, the company had terminated a small number of employees in January due to performance issues, but this latest round of layoffs is unrelated.
Major tech companies have been pouring resources into artificial intelligence as they see this new technology as a primary growth engine. At the same time, these companies are cutting costs in other areas to safeguard profit margins. Reports suggest that Google has also laid off several hundred employees in the past year to control costs and prioritize the development of artificial intelligence.
A Microsoft spokesperson stated in an email to CNBC, “We will continue to make necessary organizational adjustments to position the company for success in a rapidly changing market.”
As of June last year, Microsoft had a total of 228,000 employees. The company often prioritizes its personnel in key focus areas through layoffs.
Before announcing the new round of layoffs, Microsoft’s latest quarterly financial report revealed strong growth in its cloud computing business Azure, with quarterly revenue far exceeding expectations. These results alleviated investors’ concerns about economic uncertainty.
However, the costs of expanding artificial intelligence infrastructure have impacted profitability, with the profit margin of Microsoft’s cloud computing business dropping from 72% a year ago to 69% in March.
Microsoft has allocated $80 billion in capital expenditures this fiscal year, with most of it going towards expanding data centers to address capacity constraints in its AI services.
Analyst Gil Luria from financial services firm D.A. Davidson said that the layoffs indicate Microsoft is “very carefully” managing the pressure on profitability caused by increased investments in artificial intelligence.
He said, “We believe that Microsoft needs to lay off at least 10,000 employees annually at the current investment levels to offset the higher depreciation levels caused by capital expenditures.”
(Reference: Reuters)