Contract workers, consumer-facing products, and travel on Microsoft’s chopping block

The news: Microsoft announced workforce cuts and expense restrictions this week.

  • The tech giant is laying off hundreds of contract workers in recruitment and talent acquisition roles on top of a company-wide hiring freeze, per Insider.
  • The contractors learned about their termination earlier this week and won’t receive severance pay.
  • Microsoft also laid off its roughly 200-person Modern Life Experiences (MLE) team, telling them to find another job at the company or take severance.
  • “I thought I was going to be secure for the next year and a half, and here I am, getting let go,” a contractor who wished to remain anonymous told Insider.
  • In addition, the company has asked teams to cut back employee expenses on things like business travel and gatherings, per The Wall Street Journal.

What it means: The job cuts and belt-tightening announcements are a reversal of Microsoft’s earlier statements about its projected sub-1% layoffs being part of standard annual restructuring. Prior plans to grow its headcount over the next year are less certain.

  • Microsoft added a record 40,000 employees during its most recent fiscal year, with another 11,000 hires starting in its fiscal Q1.
  • Although Microsoft tried to keep an upbeat tone to prevent attrition, the looming recession caught many tech companies off guard.
  • The job cut announcements are likely in response to narrowly missing Wall Street’s performance expectations, despite a market rally following its latest earnings report.
  • Shutting down its MLE division means abandoning plans to expand customer-facing offerings like Mile IQ, Money in Excel, and Family Safety.
  • Company managers are reportedly now paying out of pocket for team-building social events, potentially causing some to hold a dimmer view of their tech giant employer and making attrition a risk.

Big Tech growth headwinds: Microsoft shares its plight with other Big Tech companies that are facing similar challenges.

  • Recent quarterly reports show Microsoft and Alphabet gliding on their cloud strength. Yet investor forecasts for 2023 indicate a significant slowdown in cloud spending, with a drop between mid-20% down to mid-single digits.
  • Another troubling trend for Big Tech is the rise of a global splinternet triggered by the war in Ukraine and tensions with China.
  • As the EU doubles down on tech data restrictions and the US stalls decision-making in that area, a potential trans-Atlantic regulatory rift could intensify the global internet’s fragmentation.
  • This could affect Microsoft’s and other Big Tech companies’ ability to earn revenue in other countries and challenge growth plans, potentially exacerbating the layoff picture.
  • With Microsoft’s MLE division out of the picture, it could rely more heavily on remaining consumer-facing brands like Teams, 365, and other cloud offerings, which are affected by EU regulations.
  • It could focus on expanding Microsoft Azure offerings to markets with burgeoning tech sectors in Southeast Asia, Latin America, and Africa to shore up earnings potential and stave off further layoffs.

This article originally appeared in Insider Intelligence's Connectivity & Tech Briefing—a daily recap of top stories reshaping the technology industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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