Microsoft to cut an estimated 6,000 employees

Microsoft (Nasdaq:MSFT) on Tuesday said it is laying off 3% of its employees, which equals an estimated 6,000 positions.

This move will reportedly include a cut in the number of middle managers in the company, though it will affect “all levels, teams, and geographies,” Microsoft told CNBC, which reported that the company is “aiming to reduce management layers.” It reported that the current layoffs are not tied to performance, unlike the round of layoffs in January.

A second goal, according to another report, is to increase the ratio of coders versus non-coders on projects.

While no official announcement about the layoffs was issued, a Microsoft spokesperson told Computerworld, “we continue to implement organizational changes necessary to best position the company for success in a dynamic marketplace.”

Patrick Moorhead, founder and chief analyst at Moor Insights & Strategy, said, “technology companies like Microsoft are rebalancing workforces to align with AI delivery and their internal use of AI tools. Delivering AI tools requires different developer and data skillsets, and Microsoft’s AI tools are making employees more efficient.”

Big tech headcount reductions routine

John Annand, practice lead at Info-Tech Research Group, agreed, and said that when it comes to staffing requirements, “the most important thing to remember is that big tech doesn’t operate quite like other companies. A periodic headcount reduction of 3%–5% is often routine housekeeping for firms like Microsoft, Cisco, Meta, Salesforce, and IBM.”

It is, he said, “certainly devastating for those affected, but the impact on customers is usually non-existent unless, like Google, for example, they cut an entire division or product team that your company happens to rely upon. In the case of stockholders, the impact can even be positive as the market rewards a perceived increase in profitability.” 

In addition, noted Melody Brue, VP and principal analyst at Moor, “for companies selling AI as a tool for workforce efficiency, a layoff of their own staff serves as a tangible demonstration that their technology delivers on its promise. This offers a subtle, often overlooked proof point that AI can achieve the very productivity gains they market, not just cost savings or headcount reduction.”

Reprioritization of resources

Jason Wong, distinguished VP analyst on the digital workplace team at Gartner, said, “Microsoft has made some significant organizational and operational changes over the past two years, such as discontinuing investments in HoloLens, creating a new CoreAI engineering division and unifying AI under Mustafa Suleyman. These changes likely drive the staffing changes we are witnessing, and Microsoft recalibrates talent and resources to deliver on new products and services.”

As well, Annand observed, “in today’s announcement, Microsoft explicitly cites a reduction in middle management and so seems to be taking what is so far, a very successful page from Lip-Bu Tan’s book as he focuses on turning around Intel.”

Google, he said, has “also recently been experimenting with modifying the day-to-day expectations of middle management with an eye for streamlining and increasing efficiency. The specter of AI coming for white-collar jobs looms large these days, but substantiating that fear remains difficult. In the drive for efficacy, a partnership between AI and their human counterparts, at least for now, seems to be required.” 

Jason Andersen, a VP and principal analyst at Moor, summed up the layoff announcement this way: “What we are seeing in software development organizations is a reprioritization of resources due to AI. Methods like scrum or other agile approaches can be significantly streamlined using AI tooling and AI-capable people.” This, he said, “leads to less effort on reporting and data gathering, so a reduction of this size makes sense. And for enterprise customers, this is good. More money goes into making better products and less goes into Microsoft internal processes.”

Keep up with tech industry layoff news in Computerworld’s layoff tracker.