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How Microsoft’s Layoffs Could Impact Its Employees

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Microsoft’s reorganization plan and resulting layoffs

Previously in this series, we discussed how Microsoft (MSFT) could benefit if the US dollar (UUP) continues to fall. Earlier in July, Microsoft announced a reduction in its workforce as part of its reorganization plan. Under this plan, Microsoft announced layoffs of less than 10% of its overall sales workforce.

According to CNBC, Microsoft’s layoffs would impact 75% of its employees, which are primarily based outside the US. The chart below shows the employee base and their breakup of Microsoft in fiscal 2016.

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Microsoft’s layoffs to streamline its presence in the cloud

Employee costs form a significant part of the operating expenditures for technology companies, which explains why technology companies often resort to layoffs to check their costs. However, it was not solely cost control that motivated Microsoft’s recently announced layoffs. Microsoft’s strategic reorganization to announce layoffs is intended to facilitate the company’s focus on cloud sales and capture new skilled workers to strengthen its position in the cloud space.

According to Business Insider, Microsoft aims to fill 1,600 positions listed on LinkedIn. Microsoft’s position, aided by its cloud-computing platform Azure, continues to improve in the cloud space. In fiscal 4Q17, Microsoft Azure’s revenues grew 97%.

Sharing his thoughts on Microsoft’s restructuring, Stifel Nicolaus analyst Brad Reback noted that this would “better align its go-to-market efforts around solving more strategic digital transformation initiatives” and it is “another lever that should help Microsoft grow gross margin dollars faster than opex dollar.”

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