Microsoft let go a significant number of workers last month, in a continuing round of layoffs that began earlier this year. While the tech giant didn’t verify the precise number, authentic sources like Axios have mentioned that around 1000 employees lost their jobs. The layoffs were cross-departmental, leading analysts to the conclusion that Microsoft isn’t faring too well.
Microsoft seemingly confirmed this conclusion as a spokesperson talked about how the company has to take another look at its priorities and “make structural adjustments”, according to a report by CNBC. They also said that sales for Windows licenses for PCs have been slowing down, leading to possible panic.
A Look at Microsoft’s Layoffs
The most recent layoffs affect less than 1% of Microsoft’s staggering workforce of 181,000 employees, but they still might be cause for some concern. The company reiterated that these were structural changes and it will add additional workers in the upcoming year. However, news from other sources has been grim, with Gartner reporting a 12.6% decline in global PC sales and shipments when compared to the second quarter of 2021.
These October layoffs have been the third wave of such occurrences, with Microsoft slashing roles and shutting down new openings earlier during the year. The company also announced a 10% revenue growth plan in the fiscal first quarter, the lowest in the last five years. While the job loss has been spread across departments, gaming and government services sustained the deepest impact.
Layoffs in the Tech World
The general economic situation, geopolitical tensions, and the Russia-Ukraine conflict are just some of the factors that have impacted Big Tech in a negative way over the past two years. Add a possible threat of looming recession and you have the perfect combination of fear and panic that leads to people losing their jobs. According to Crunchbase, approximately 32,000 employees across the U.S. tech industry have lost their jobs since July.
These layoffs are at the door of massive names in the tech industry. Elon Musk just announced a mass layoff that gets rid of 50% of Twitter’s employees, in a move he claims is unavoidable. The alternative was costing Twitter a loss of around $4 million a day. Musk has joined the ranks of other tech giants like Meta, Salesforce, Netflix, Coinbase, and Oracle, which has considered mass layoffs to save millions of dollars.
The Case for Google (Alphabet)
The pandemic has turned out to be very beneficial for the growth of Google. From 2020 to September 2022, the company’s annual revenue has grown by over 71%. This shows a promising and glowering future of Google ahead. However, the extra revenue boost with the pandemic has slowed down a bit now. Moreover, the economic crunch has somehow snapped at Google’s door too, as the company cut roughly 50% of its Area 120 staff earlier this year. Google chose to proceed with quiet layoffs, which is where companies reorganize teams and subtly ask employees to find new roles. It’s a way of easing them into it, though losing your job can never be easy.
These cuts came after the CEO announced a necessary increase in productivity across the company. He said that a 20% productivity boost is crucial for the business to keep running smoothly. The decision for these layoffs came after a mass hiring wave in the last two to three years, with the CEO saying that growth at Google has been slower than he would have liked. The layoffs will streamline and simplify company processes.
Microsoft Vs. Google: A Look at Growth
Despite the mass layoffs, both tech giants have been faring pretty well in terms of growth. Microsoft reported $51.9 billion in total group sales in the fourth quarter ended June 30, 2022, a 12% increase in comparison to last year’s same quarter. Alphabet/Google experienced a 13% boost in its year-on-year revenue, but saw a loss in profits by 14%. However, Google did report a 12% increase in revenue from online advertising, equaling $56.3 billion.
Both tech giants have reported lower revenues when compared to historic data, but this doesn’t mean that either of them has slowed down with growth. In fact, Microsoft has reported an operating income of $20.5 billion, an increase of 6% if compared to last year’s quarter. Microsoft is also enjoying revenue from its cloud, reporting $25.1 billion in the June quarter and $25.7 billion in the September one.
However, Google Cloud has been catching up despite comprising around 1/4th of Microsoft’s Cloud business. Google Cloud reported a revenue of $6.276 billion in Q2 and then $6.868 billion in Q3, showing an increase of $592 million. That’s very close to Microsoft’s $600 million revenue jump.
How does Mass Layoffs Impact Investors?
While mass layoffs may be a cause for concern to the larger public, investors may have a different view. In certain cases, investors feel safer when companies lay off employees because this means an increase in overall profits and strategic cost cutting. Investors get more bang for their buck and enjoy higher dividends.
Both Microsoft and Alphabet/Google present strong portfolios and have distinct competitive advantages. The companies have rapidly growing cloud businesses, excellent and multiple growth drivers, solid financials, and a history of good decisions to back them up. Google might be the slight better bet when it comes to investing, but that’s only because it presents a high annual ROR (Rate of Return) at the moment.
Which Tech Giant is in Trouble?
The truth is that neither Microsoft nor Google are floundering in any way. The mass layoffs indicate a larger problem across the tech industry and have affected workforce in companies, like Meta, Snap, Netflix and more. Employment compensation was reported to be the most expensive cost for a number of these companies and had to be cut out. This doesn’t mean that the companies aren’t doing well.
Both Microsoft and Google have their fingers in many pies, figuratively speaking, and while they might have had to scale back from certain areas, they’re expanding into others. While Google seems like the better choice to invest in due to Google Cloud’s rapid growth, Microsoft has a vast and diverse portfolio, meaning that the company isn’t facing any serious stagnation or losses. For the major part, the trouble is being experienced by the workforce and not Microsoft or Google.