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Microsoft is cutting its total workforce by about 2.1%, under which about 4,800 employees will be laid off.
Amidst the ongoing layoffs in the tech industry, this giant Windows manufacturing company has taken this decision to spend heavily on AI infrastructure and increase efficiency in the business.
Pressure on tech companies increases as spending on AI increases
Big Tech companies’ spending on AI is expected to exceed $700 billion this year. Due to this, there is increasing pressure on companies to show returns on investment and reduce the huge costs of implementing technology. Due to this pressure, this year Amazon and Meta Platforms have also laid off thousands of their employees.
Microsoft shares fell 20% in 6 months
Microsoft made this announcement of layoffs on Monday after a difficult half year. The company’s shares have fallen by almost 20% in the first six months of 2026, which is the company’s worst half-year performance since 2022.
The company often conducts layoffs at the end of June.
Earlier this year, software giant Microsoft had offered voluntary buyout to about 7% of its American workforce i.e. about 9,000 employees.
Microsoft often cuts jobs near the end of its financial year in June, as this is when the company finalizes its spending plans for the new financial year.
Cash flow affected by increasing cost of building data centers
Strong demand for AI has seen strong growth in Microsoft’s Azure cloud computing business, which until April was the exclusive seller of OpenAI models.
However, the ever-increasing cost of building data centers to support these services has put a huge strain on the company’s cash flow.
Capital expenditure estimate of $190 billion for 2026
The company may declare its quarterly results at the end of this month. Earlier in April, the company had estimated quarterly Azure revenue above Wall Street estimates.
Along with this, the company has estimated capital expenditure of $ 190 billion for the year 2026, which is much higher than analysts’ expectations.
Company forced to increase prices of Xbox console
AI tools that automate routine business tasks have also emerged as a challenge for Microsoft’s software business. Additionally, data center demand has caused a huge surge in memory chip prices.
Because of this, the company has been forced to increase the prices of its Xbox gaming console, while its demand in the market was already weak.
Gaming division’s profit margin falls to 3%
Asha Sharma, the new head of the gaming division, said last month that the business needed a ‘reset’. The gaming division’s profit margin has fallen to 3 percent, necessitating restructuring. This restructuring may also include possible mergers and acquisitions (M&A).
In a memo sent to employees and published on the company’s website, Asha Sharma said that excluding Activision Blizzard King, over the last five years we have spent more than $20 billion in ongoing investments on our content, platforms and hardware subsidies.
However, during this period our annual revenue has decreased by almost half a billion dollars. This cannot be continued like this in future. According to a media report, the company is considering the options of making the Xbox gaming unit a separate company or restructuring it as a wholly owned subsidiary.
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