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) teamtelling 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, 365and 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.