Microsoft is cutting approximately 6,000 jobs, less than 3% of its total workforce, as part of a cost-saving measure. This move comes despite the company’s significant investments in artificial intelligence (AI). The layoffs represent Microsoft’s largest job cuts since last year’s 10,000 layoffs.
Background on Microsoft’s Layoffs
The current job cuts are separate from earlier performance-based exits in January. Microsoft had about 228,000 employees as of June last year. The company is restructuring its staff to focus on key areas, particularly AI development.
Big Tech’s AI Investment Trends
Major tech companies like Microsoft and Google have been increasing their investments in AI, believing it to be the future of their business. At the same time, they’re reducing their workforce. “We continue to implement organisational changes necessary to best position the company for success in a dynamic marketplace,” a Microsoft spokesperson said.
Financial Implications of AI Development
Although Microsoft’s cloud platform Azure performed better than expected, the cost of developing AI systems is impacting profits. In the fourth quarter, Microsoft Cloud profit margins dropped to 69% from 72% in the previous year. The company is investing $80 billion this year, primarily to build additional data centers needed for AI tools and services.
Analyst Insights on Microsoft’s Strategy
Technology analyst Gil Luria at D.A. Davidson noted that the layoffs show Microsoft is working to manage the pressure on earnings caused by its massive AI investments. “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 explained to Reuters.
