Microsoft freezes hiring in core cloud business and sales departments

Microsoft CEO Satya Nadella

According to three current Microsoft employees who are directly aware of the decision, in recent weeks, Microsoft executives have informed managers in key departments, including Azure Cloud Business and North America Sales, to suspend all new employee hiring.

It is not uncommon for Microsoft to slow down hiring or even lay off employees at the end of a fiscal year, which ended in June. However, this cost control approach by Microsoft also reflects the general attitude across the tech industry — companies are striving to offset massive investments in artificial intelligence.

Insiders say that the Microsoft departments affected by the hiring freeze employ tens of thousands of workers. In the aforementioned two business units, executives have requested managers to stop hiring all candidates who have not yet received job offers, citing the need to control costs and improve profit margins.

Another employee revealed that this hiring freeze does not cover the entire company, and other teams, including the engineering department responsible for developing Copilot (the built-in AI tool for Microsoft Office and Windows), continue to hire.

The tightening of hiring and layoffs has become the norm in the tech industry. On one hand, large companies are investing unprecedented amounts of money in AI data centers, while on the other hand, they face potential impacts from new AI products launched by companies like Anthropic and OpenAI. Just this week, Meta, which has heavily invested in AI data centers, laid off hundreds of employees, and Google is also cutting staff. Smaller software companies like Atlassian are similarly laying off employees or freezing hiring.

Amazon Web Services (AWS), which has heavily invested in AI infrastructure, has laid off thousands of employees in recent months and has introduced new internal AI tools to automate the work of existing staff. Insiders revealed that ServiceNow, a company providing software for IT personnel, is hiring AI developers and salespeople this year while cutting other positions to maintain a stable total employee count.

However, Microsoft is facing unique pressure from investors. Its stock price has dropped 24% this year, performing the worst among large tech stocks, which reflects investor concerns about the potential disruption of AI to enterprise software business and raises doubts about Microsoft’s large-scale investments in cloud server leasing.

Microsoft’s last quarterly earnings report showed that Azure’s growth rate has slightly slowed down, and about 45% of Azure revenue orders (i.e., customer consumption commitments) come from a single customer — OpenAI.

Despite multiple rounds of layoffs in recent years, totaling about 15,000 last year, the company continues to hire, with the total number of full-time employees at the end of the last fiscal year being about 228,000, consistent with the previous year.

According to a person who has communicated with Microsoft executives, some executives believe that due to pressure on the software business and the internal use of AI tools, the total number of employees is unlikely to grow in the coming years.

A Microsoft spokesperson declined to comment.

Another signal that employee numbers may remain stable is that Microsoft has recently halted construction on five office buildings under construction in its Redmond campus in Washington state. Company president Brad Smith said last month to local media that Microsoft is still planning arrangements for remote employees to return to the office.

Microsoft executives have made it clear to employees in the cloud business and sales departments that cost reduction, efficiency improvement, and increasing operational profit margins are the top priorities. Earlier this month, in an email to managers, an executive informed the Azure engineering team, led by Girish Bablani and composed of 11,000 employees, that all potential hiring is paused, except for those who have already received job offers; the “core goal” of the department before the end of this fiscal year is to narrow the gross margin gap.

Hilary McFadden, chief of staff for the Azure core department, wrote in an email: “The Azure core department has no space or approval authority to continue hiring.”

She stated, “The pressure will continue to be transmitted until we finalize a feasible and actionable plan to resolve the gross margin gap.” “We are indeed aware of the impact this adjustment may have on your teams, and this change is significant.” She also thanked employees for their leadership shown in this “difficult situation.”

According to two insiders, in multiple business units overseen by Judson Althoff, Microsoft’s global sales president and CEO of business operations, executives have similarly notified managers that new hiring demands (referred to internally at Microsoft as open positions) will be indefinitely suspended. This freeze includes the software sales department targeting large enterprise customers in the U.S. and the department selling Azure to small and medium enterprises, each of which has thousands of employees.