Weeks after Microsoft's latest round of layoffs, CEO Satya Nadella addressed the elephant in the room.
The company is enjoying record financial success. Yet it's laid off 15,000 employees since May.
In a memo to employees on Thursday that was later made public, Nadella said the layoffs he and the company enacted were weighing heavily" on him. Amid a souring culture and a fundamental technology shift in the industry, he also acknowledged the "uncertainty and seeming incongruence" between the job cuts and a healthy balance sheet.
Nadella said that by every measure, Microsoft is thriving. Market performance and revenue growth are heading straight up, and the company is spending more on investments than ever before.
Every three months, Microsoft posts record quarterly revenue and profit, with sales from its cloud-based products finding success with both consumer and commercial customers. The company also has lower operating costs than its cloud rival Amazon, which gives Microsoft greater profit margins.
The company reported more than $70 billion in revenue during the first three months of the year, with more than $25 billion in profit. Microsoft will report financial results for the months of April, May and June next week.
"This is the enigma of success in an industry that has no franchise value," he said. "Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding."
Microsoft's layoffs hit employees in at least three waves between May and July. The company first laid off more than 6,000 people in May, followed by another 312 in June and more than 9,000 in July. Unlike during mass layoffs in the past, there wasn't a memo from Nadella or members of the senior leadership team.
The layoffs weren't fueled directly by artificial intelligence, one of Microsoft's primary focuses. Workers aren't being replaced by automation, according to the company. But Microsoft President Brad Smith told GeekWire earlier this month that the company's AI investments, an estimated $80 billion over the past year, are creating pressure on operating costs.
Those investments are largely in building out data centers and acquiring AI computer chips to meet a growing demand.
The company is risking a culture of fear with successive layoff rounds as it prioritizes AI projects. The layoffs feel random, but those who aren't working directly on new AI products worry they may be next.
Microsoft's push into AI is causing shifts throughout the company, which some longtime employees may not feel comfortable with. Nadella said this "might feel messy at times, but transformation always is." He said more teams will reorganize and job scopes will expand.
That's fitting into Microsoft's limited explanations for the layoffs.
The company's statements said it's striving for more streamlined and agile teams, with more employees per manager throughout the corporate workforce. Internal memos from certain divisions have also told employees they can expect a blurred line between product managers and other roles.
"This platform shift is reshaping not only the products we build and the business models we operate under, but also how we are structured and how we work together every day," Nadella said.
As he approached employees with his conciliatory tone, Nadella also laid out a challenge for the future of Microsoft.
Microsoft is going through a "difficult process of unlearning and learning" to meet changing customer needs. But to be successful, while the company is creating new categories and new business models, it will maintain and scale current businesses.
"This is inherently hard," Nadella said. "And few companies can do both.
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