Microsoft sign
Source: Microsoft

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Microsoft CEO Satya Nadella cited a need to "align our cost structure with our revenue and where we see customer demand" in a statement announcing that the tech giant would be laying off 10,000 employees over the next few months. The layoffs account for just under 5% of Microsoft's total workforce, and are starting happening today.

This comes just two weeks after Amazon announced layoffs totally 18,000 people (which started yesterday), though due to Amazon's massive physical presence involved in getting purchases to customers that's not as large of a percentage of their 1.5 million total global employees. Corporate software firm Salesforce also announced large layoffs earlier this month, knocking 8,000 off their headcount. Meta, owner of Facebook, chopped 11,000 jobs last fall.

Microsoft is laying off 10,000 employees while investing billions into AI tools that may end up replacing those jobs entirely.

Microsoft's layoffs come with a particular sting, as they come not long after reports that Microsoft was considering investing $10 billion into ChatGPT-creator OpenAI. Microsoft just yesterday started adding Open AI tools to their Azure cloud services. Investments in machine learning and artificial intelligence are obviously important for a leading tech company like Microsoft — it'd be irresponsible for them to not investigate applications of such systems.

As Nadella's statement on the layoffs said, Microsoft will "invest in strategic areas for our future". Cutting five percent of their expensive workforce will open up funds to pivot into such investments. That those investments are going into AI tools that could end up replacing employees has to add an extra layer of pain for those that are being let go.

And though I'm not economist, I can't help but feel like these companies are almost willing a recession into happening. Microsoft's last quarterly earnings report featured them beating analyst expectations of revenue by nearly a percent and profit by nearly 2%. They added $8.95 billion to their cash on hand just last quarter and have a war chest of more than $100 billion in cash on hand. Microsoft is a company that is thriving and healthy and well-positioned to weather almost any storm. Salesforce and Amazon and all the other tech firms making large layoffs over the past few months are in similar states: still making money hand over fist, with a bank account that's unfathomably large.

The economy is roaring and Microsoft has a $100 billion in the bank. What gives?

Meanwhile, consumer spending continues to grow even when adjusted for inflation, higher wages mean more spending power per customer (though inflation has cut into that), and employment numbers are still on a tear with the US unemployment rate dropping to a 50-year-low of 3.5%.

There are two things really "hurting" companies like Microsoft right now.

  1. Higher interest rates mean it's no longer as advantageous for corporations to take out a large low-interest loan to finance operations, knowing they'd make much more in profit than they would pay in interest.
  2. Many tech companies had incredible quarters during the pandemic when businesses had to pivot their business and purchase online tools like Microsoft Teams to continue operating, and consumers suddenly had more cash to spend since they weren't going out to eat or on vacations, or they received government stimulus checks even though they were still working full-time. But the short-sightedness of Wall Street investors means that 2020-2021 aren't looked at as financial aberrations — instead they still expect sustained growth and will punish the stock if they don't get it.

Things are actually in pretty great out there, but because the prevailing economic conditions point towards a slight reduction in profit potential these companies are taking drastic measures to keep their stocks soaring high. All that matters is the quarterly report.

That's not to say that Microsoft or any company has a responsibility to continue employing people they don't think are necessary to the company's operations. Microsoft is a publicly traded company, their first responsibility is to generate shareholder value, and cutting costs in one area to invest in another that's projected to bring significant growth is a responsible move. They are free to make decisions on resource allocation that they believe are in the company's (and shareholders) best interests both in the short and long term.

But it's still painful to watch and undoubtedly painful for these employees and their families to endure.

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