Microsoft began laying off about 6,000 workers Tuesday, nearly 3% of its entire workforce and its largest job cuts in more than two years as the company spends heavily on artificial intelligence.
Hardest hit was the tech giant's home state of Washington, where Microsoft informed state officials it was cutting 1,985 workers tied to its Redmond headquarters.
Microsoft said the layoffs will be across all levels, teams and geographies but the cuts will focus on reducing the number of managers. Notices to employees began going out on Tuesday.
The mass layoffs come just weeks after Microsoft reported strong sales and profits that beat Wall Street expectations for the January-March quarter, which investors took as a dose of relief during a turbulent time for the tech sector and U.S. economy.
“I think many people have this conception of layoffs as something that struggling companies have to do to save themselves, which is one reason for layoffs but it’s not the only reason,” said Daniel Zhao, lead economist at workplace reviews site Glassdoor. “Big tech companies have trimmed their workforces as they rearrange their strategies and pull back from the more aggressive hiring that they did during the early post-pandemic years.”
Microsoft employed 228,000 full-time workers as of last June, the last time it reported its annual headcount. About 55% of those workers were in the U.S.
Microsoft announced 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'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 to the end of last year.
The layoffs are hitting all parts of Microsoft's business, including the career networking site LinkedIn and the video game platform Xbox.
The company didn't give a specific reason for the layoffs, only that they were part of "organizational changes necessary to best position the company for success in a dynamic marketplace.”
Microsoft has said it has been spending $80 billion in the fiscal year that ends in June on building data centers and other infrastructure it needs to develop its artificial intelligence technology. Those AI tools have been pitched as changing the way people work, including in Microsoft's own workplaces.
Microsoft CEO Satya Nadella told Meta CEO Mark Zuckerberg at an AI event last month at Meta's headquarters that “maybe 20, 30% of the code” for some of Microsoft's coding projects “are probably all written by software.”
Even if AI is increasingly helping Microsoft software engineers, however, doesn't necessarily mean it's a chief reason for laying them off.
“When these big tech companies say that they’re trimming management layers, that doesn’t really sound like it’s being driven by AI,” Zhao said. “You’re not expecting ChatGPT to replace the manager.”
Instead, cutting management ranks can often reflect a broader strategy.
“As companies grow quickly, you need to add managers who can coordinate across teams or within teams,” Zhao said. “But it’s not until things start to slow down that people start asking questions about how necessary those roles are.”
Of the laid-off employees in Washington, about 1,500 worked in person at Microsoft's offices and 475 worked remotely, according to the notice the company sent to the state employment agency. Their official last day will be in July.
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