The tech industry rampage continues. Microsoft just announced a new round of layoffs after the mass layoff in January, which affected around 10,000 people.
According to a recent filing with the local government in Washington, Microsoft is currently reducing its workforce by a minimum of 276 positions.
Reasons behind Microsoft layoffs
So, the big question on everyone’s mind is why Microsoft has chosen to implement another wave of job cuts after the January layoffs. What could be the driving force behind this decision?
Organizational and workforce adjustments
The job cuts in July involved sales, marketing, and customer support roles mainly. Compared to the January layoffs, which affected employees dedicated to guiding artificial intelligence innovation that leads to ethical, responsible, and sustainable outcomes, this round of layoffs involved more divisions.
Microsoft spokesperson said the following in an emailed statement:
“Organizational and workforce adjustments are a necessary and regular part of managing our business. We will continue to prioritize and invest in strategic growth areas for our future and in support of our customers and partners”
Although many tech companies refer to workforce adjustment or restructuring during mass layoffs, while it is just about cost-cutting, it is not always the case.
Regarding Microsoft, workforce adjustment is definitely one of the driving forces. While the workforce reduction may seem contradictory, Microsoft’s financial performance in 2023 tells a different story.
In the third quarter of 2023, the company reported a net income of $18.3 billion, a 9 percent increase compared to the same period in the previous year. So, it is safe to say that Microsoft is doing fine financially.
Artificial intelligence focus
Over the past six months, the tech giant has experienced a remarkable 40.74 percent increase in its stock price. This positive trend is partly attributable to Microsoft’s investment in generative artificial intelligence companies.
Many giant tech companies, including Microsoft, dedicated their resources to artificial intelligence development. OpenAI closed its last funding round on April 28, and Microsoft’s investment is around $10 billion.
Furthermore, Microsoft is also backing the OpenAI Startup Fund. It is a $100M program launched last year to fund early-stage artificial intelligence startups.
Related post: Everything You Need To Know About OpenAI Startup Fund
Considering the volume of these investments, Microsoft prioritizes the development and growth of artificial intelligence technologies.
Excessive hiring during Covid
The excessive hiring during the pandemic has also impacted the job cuts we have experienced lately around the tech industry. The demand for online services significantly increased during Covid, and most tech companies hired new employees to keep up with the demand.
And Microsoft is not an exception.
Microsoft increased its headcount from 163,000 to 181,000 between 2020 and 2021, an 11.04 percent increase. Microsoft had approximately 221,000 employees the following year, a massive 22,09 percent increase from 2021.
However, the expectations were too optimistic. Due to the changed macroeconomic environment and decreased demand after the pandemic, many tech companies were forced to cut jobs to reduce costs.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that.”Salesforce
The recent series of layoffs at Microsoft, impacting over 10,000 employees, clearly indicates that the management’s optimism might have been overly ambitious.
Related post: The Reasons Behind Intel’s Massive Layoffs In 2023
Tech industry landscape
If we look around the tech industry, there are still significant layoffs. Niantic, the company that developed Pokémon GO, also decided to lay off 230 employees on June 29.
Olx Group, the online marketplace, has recently reduced its workforce by approximately 800 jobs globally.
Similarly, after January’s layoffs, Spotify announced its plans to cut 200 jobs in its podcast unit.
Even though the tech industry is still experiencing layoffs, the volume of these job cuts is continuously decreasing compared to the beginning of the year. During January, 84,714 people were laid off in the tech industry, and there were only 10,524 people laid off in June.
Many of the biggest tech companies’ CEOs have decided that about 6% of the workforce is a magic number regarding layoffs. As most tech companies have already reached this number, the intensity of the job cuts should decrease.
When it comes to Microsoft, the current round of layoffs is mainly the result of organizational and workforce adjustments, excessive hiring, and artificial intelligence priority rather than financial difficulties.