How Will Microsoft ‘Align’ Its Cost Structure with Layoffs?

By Jeffrey Schwartz

The layoffs at Microsoft announced on January 18 will impact 10,000 employees. While that’s a lot of people who will be losing their jobs, amounting to 5% of its workforce, it comes after a massive hiring spree of 57,000 people since 2020.

But as Microsoft and other tech companies were expanding for growth, the company didn’t anticipate last year’s sudden shift in the economy, sparked by surging interest rates, the war in Ukraine, a sharp drop in demand for PCs and swiftly slowing cloud services growth.

“We will align our cost structure with our revenues and where we see customer demand,” chairman and CEO Satya Nadella wrote in an email to employees announcing the layoffs. “We will continue to invest in strategic areas for our future, meaning we are allocating both our capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas.”

Microsoft reportedly has made major cuts in its mixed reality business. According to various reports, the company is cutting its mixed reality toolkit team and those working on AltspaceVR virtual reality workspace project.

However, the Microsoft Mesh metaverse project appears to be safe, as the company showcased it earlier this month at the World Economic Forum in Davos.

A sharp 39% year-over-year decline in devices revenue has fueled reports that employees in Microsoft’s Surface business may be affected. CFO Amy Hood said during Microsoft’s earnings call that the Surface business underperformed due to execution issues. According to reports, Microsoft may be putting the brakes on the Surface Hub business and its small Surface Duo device.

Employees with Microsoft’s Web Experience Team, known as WebXT, were among those affected, according to Business Insider. The WebXT, which includes Bing search and the Edge browser, includes the group that is working in integrating OpenAI’s ChatGPT technology into Bing, according to the report.

Meanwhile, Microsoft is all in on AI. During the earnings call, Nadella touted the release of Microsoft’s new Azure OpenAI Service and the forthcoming release of ChatGPT in Azure “enabling customers to use it in their own applications for the first time.”