More layoffs at Microsoft: What's really going on here?

We had a record quarter, so sorry to see you go

Analysis Microsoft plans to lay off about 1,000 people across the tech giant, despite what CEO Satya Nadella described during the corporation's April earnings call as "a record third quarter."

While reports have suggested Microsoft would cut as many 1,500 people just from its Azure for Operators group, The Register has been told that number is not accurate and is inflated.

We understand that the layoffs are spread out across more business units, including the company's Mixed Reality group, which we understand was restructured on Monday. We're told the business intends to continue working on the Defense Department's IVAS program, its Mixed Reality hardware, and HoloLens 2 kit.

"Organizational and workforce adjustments are a necessary and regular part of managing our business," a Microsoft spokesperson told The Register in an email. "We will continue to prioritize and invest in strategic growth areas for our future and in support of our customers and partners."

The job cuts are about half the number Microsoft made in January, three months after completing its acquisition of Activision Blizzard. In December, Microsoft's LinkedIn cut about 400 jobs, per a Worker Adjustment and Retraining Notification (WARN) in California. A WARN issued in Washington State in September 2023 tells of 276 people laid off from Microsoft. And at the start of 2023, the Windows biz let go of about 10,000 people.

During Microsoft's FY24 Q3 earnings call, Morgan Stanley analyst Keith Weiss asked Microsoft executives to discuss the mega-corp's AI spending. He said there's "a lot of excitement in the marketplace around generative AI and the potential of these technologies, but there’s also a lot of investment going on behind them. It looks like Microsoft is on track to ramp Capex over 50 percent year-on-year this year to over $50 billion."

Nadella responded that the spending will continue, explaining: "We have been doing what is essentially capital allocation to be a leader in AI for multiple years now. And we plan to sort of essentially keep taking that forward."

According to CFO Amy Hood, "Capital expenditures including finance leases were $14 billion to support our cloud demand inclusive of the need to scale our AI infrastructure." A decade ago, Microsoft's quarterly capex was more like $1.2 billion. And such spending has soared in the past few years.

Faced with greater expenses, Microsoft is cutting costs, which in this case means getting rid of employees. While there's an ongoing debate about the extent to which AI will eliminate jobs and create new ones, the expense of developing AI products already appears to have employment consequences.

Last month, global outplacement firm Challenger, Gray & Christmas reported that the tech industry in April continued to lead other industries in job cuts, though these were down 58 percent from the same period a year earlier. The firm said "cost cutting" is the leading reason given for layoffs this year, followed by "restructuring."

"Artificial Intelligence was cited for 800 job cuts in April, the highest total since Challenger first tracked job cuts for this reason in May of 2023, when 3,900 cuts were cut due to this reason," the firm said. "Since then, companies cut 5,430 job cuts due to AI, either because the companies were pivoting to developing it or because it replaced tasks and roles."

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The website reports that in 2024 so far, tech firms have laid off almost 90,000 people, at a time when the US economy is adding jobs. Last month, the US Bureau of Labor Statistics said that in April, the US added 175,000 nonfarm jobs, down from about 303,000 jobs added in March.

According to an analysis by the Associated Press, the pay of CEOs running companies in the S&P 500 rose 13 percent last year and the median pay of a CEO was $16.3 million.

Workers in the private sector saw a more modest wage increase of 4.1 percent. Half of the CEOs surveyed made at least 196 times the wages of their median employee, the AP report said, up from 185 times median employee wages in last year's survey.

Nadella was paid about $48.5 million in 2023 and the median employee compensation was $193,770 per year.

Measured in executives, Microsoft is laying off about four Nadellas. ®

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