Microsoft will be laying off up to 9,000 workers in its second wave of mass layoffs this year, according to reports.
The layoffs will affect multiple teams, geographies, and tenures, and are happening in an effort to streamline processes and reduce layers of management, a spokesperson said. Microsoft has not yet said how many people will be laid off, but clarified that it will consist of less than 4% of the workforce it had a year ago, which equates to around 9,000 people.
Microsoft’s Second Round of Mass Layoffs
This follows Microsoft’s earlier round of layoffs in May that impacted 6,000 people, bringing the company’s approximate total to 15,000 this year. Bloomberg reported that this latest round of layoffs is likely to be linked to the company’s aim to cut costs amid considerable spending on artificial intelligence, and this comes at a predictable time – Microsoft often restructures teams and announces other changes near the end of its fiscal year, which closed in June.
Sales teams will be heavily affected this time – a difference from the last round of terminations that largely affected product and engineering positions.
“We continue to implement organizational changes necessary to best position the company and teams for success in a dynamic marketplace,” the spokesperson said.
According to the Associated Press, Microsoft had employed 228,000 full-time workers as of last June, which was the last time it reported its annual headcount. The company has now said that its latest layoffs would cut close to 4% of that workforce, which translates to around 9,000 people.
All Signs Point to AI
Brody Ford, a reporter at Bloomberg who has covered the tech market extensively, took to LinkedIn to share his thoughts on the news and what is likely behind these layoffs.
“With over $96 billion in annual profits, a lot of folks have asked me why Microsoft is doing this,” he wrote.
“In part, because AI is expensive. After spending tens of billions on data centers and AI development, Microsoft pledged to Wall Street that it would put a lid on costs. So far this year, that has meant at least 15,000 people losing their jobs.”
Earlier this year, Microsoft announced that it would be spending $80B on AI data centers, with the company’s President Brad Smith admitting that most of the expenditure of fiscal year 2025 will go towards the structure of these data centers.
The majority of internal SaaS expenditure is and will continue to funnel into AI efforts going forward, making this decision from Microsoft unsurprising. It is likely that the company wants to focus as much of its time and resources on this as possible, and that ultimately leads to cuts such as this.
The Hidden Threat of Section 174
Although cutting costs and AI expenditure are the two most probable reasons behind this round of layoffs, it is likely – along with numerous other tech layoffs – to have been impacted by a change to the US tax code Section 174.
This change has had the power to dismantle in-house software and product teams at companies of all sizes, from tech giants like Microsoft and Meta to smaller private, direct-to-consumer, and internet-first businesses.
Interestingly, in April, Microsoft told its employees that it would rely more on outside companies to handle software sales to small and medium-sized customers – a move that could have been spurred on by the impact of changes to the tax code.
It is unlikely that this is the full reason behind the layoffs, but it would be practical to assume that multiple factors are at play.
Final Thoughts
Microsoft had 228,000 workers at the end of June 2024, 45,000 of them in sales and marketing. It’s clear that these layoffs – as well as the other 63,800 tech layoffs that have taken place this year – are significant.
In an already turbulent tech landscape and job market, these layoffs come as a damning reality of how companies are shifting their goals and restructuring their teams to press forward with AI initiatives. Hopefully, whether it’s this year or next, we see the other side of these layoffs with new positions becoming available that align with these initiatives.
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