If Microsoft is doing so good why layoffs? | Hacker News Reader

If Microsoft is doing so good why layoffs?

41 pointseclectic2958 comments

Microsoft released earnings yesterday and showed excellent perf on all fronts. Why do 10k layoffs then?

Large companies over-hire to short-term inflate the share price, then lay-off the over-hire to also short-term inflate the share price. In essence, you take the market sentiment and hire/fire in order to reinforce it.

e.g. "Outlook is good, we're in a hiring cycle because we want to take advantage of the positive market conditions." "Outlook is bad, we're in a layoff cycle because we want to protect ourselves." Shareholders love both since the company is being "efficient."

Only one who loses is the little employees (and, frankly, long term stability; but modern US businesses only have foresight to the end of the current FY and only memory of the last FY).

>Large companies over-hire to short-term inflate the share price

src on that?

I don't know that they hire to inflate the share price.

In good times, I have felt like that some R&D projects exist just to say "we have people working on it" for investor calls and such. In bad times, those things can get cut.

I doubt this is true.

While many variable I suspect it's more about phases.

Company has a growth focus phase so the books are opened and people can hire away to get stuff done. There always more that can be done so they keep hiring, usually too many, til the company hits profit focus phase.

Then they look to cut costs, of which staff are typically a large variable component, they slash numbers, again probably too much, and then continue til they return to growth focus and repeat.

Some questions and facts to think about for you to correct your bias: 1. How long has Microsoft been around if you think they can only see end of current FY? 2. Has they grown larger and larger in terms of revenues and profits if they can only focus on short term ? 3. How much does Microsoft ‘little employees’ get paid ? 4. After ‘little employees’ got laid off, are they doing really bad after Microsoft?

Sounds similar to Hawthorne effect to me, where they sudied office workers on how they reacted to dimming or raising the lights and both caused upward productivity but it was because the workers realised they were being watched not because the lighting caused changes.

Neither the hiring or the firing necissarily make the company more efficient but maybe being watched and knowing they are being watched does.

This assumes layoffs are actually done using some logical process. But everything I’ve heard about the folks who have gotten let go says otherwise. No one is being fairly rated. So no one will assume they are being “watched”.

Perhaps one or more of the following:

0. They want to reduce labor costs in the short term.

1. They think some projects will not produce value in the near or long term, so they are canceling those projects and laying off the people who work on them.

2. They want to reduce salaries in the near and long term. (Fire at high salary, rehire at low if needed.)

3. They got a big tax bill due to the changes in R&D amortization.

4. They believe they can automate existing jobs and/or replace them with AI.

Layoffs usually destroy business value.[1,2] In this case I expect MS might be betting on reduced labor costs (including taxes) in the short term followed by salary reduction and automation in the near and long term.

[1] https://hbr.org/2022/12/what-companies-still-get-wrong-about...

[2] https://www.inc.com/nick-hobson/according-to-this-stanford-p...

> 4. They believe they can automate existing jobs and/or replace them with AI.

Yawn. It's more about disciplining the workforce.

It's always about disciplining the workforce. This doesn't necessarily serve the bottom line, but it does serve the status hierarchy, and we all know who is in charge.

But the question is: why now? Is it because workers are having more autonomy from working at home, etc.? Is it because they fear unionization or some sort of worker rebellion?

And what reason is there to believe that automation won't continue to happen, as it has for the past 40 years for a variety of office jobs?

Automation will continue to happen, but what you are seeing now is due to a mix of reasons unrelated to a chat bot. Over hiring, inflation (suddenly not a main topic, was replaced by ai scare mongering it seems), bad politics, interest rate hikes, crappy products, and a handful of other reasons, none of which are "ai".

> a handful of other reasons, none of which are "ai".

"IBM to pause hiring in plan to replace 7,800 jobs with AI"

https://news.ycombinator.com/item?id=35780706

The base interest rate has gone up.

Businesses don't pay for costs solely with revenue, they also use cash from loans. Revenue is used to pay off loans, so higher interest rates mean loans become more expensive. To maintain constant loan repayment costs through a projected year, the total amount of those loans has to go down. With lower cash from loans, costs have to be cut and payroll is one of them.

I think this partially explains why everyone is doing layoffs regardless of revenue performance: they all have to adapt to the same conditions of higher interest rates.

microsoft needs loans?

Sure; every company effectively does, by way of the "cost of capital:" https://online.hbs.edu/blog/post/cost-of-capital#:~:text=Wha....

But regardless of whether any big tech co. needs loans or not, the cost of any investment they make, as well as the referred-to-present value of any payoff from it, are anchored to the interest rate. And the recent upward movement in the interest rate -- not to mention high inflation -- has drastically (relative to the ~0% interest days) raised the costs and lowered the payoffs.

Tech (both Big Tech & startups) is also getting hammered hardest first here mostly because those are the ventures that attracted investment of the lion's share of 0%-minted dollars, and that investment is vaporizing at the same time that the ROI (payoffs - costs) on lots of those firms' WIP has gone negative.

Need? No. But they can invest cash on hand into things that have a higher yield than the base interest rate, and operate the business using loans at the base interest rate.

Even Apple with its giant cash war chest uses loans. A lot of their money is in offshore subsidiaries and would incur a tax if they on-shored it to the United States. It’s often cheaper to borrow money and pay it off with earnings than to pay taxes on the money.

Every price includes an interest rate derivative, even if you pay with cash.

If interest rates are high, then buying something has a higher opportunity cost since you're forgoing earning interest on your capital. As patio11 put it in https://www.bitsaboutmoney.com/archive/banking-in-very-uncer..., "when interest rates rise, all asset prices must fall."

Good read, thanks

Cashflow is hard ... On the one hand you must pay 200,000+ employees everywhere in the world at regular intervals without fail. But on the other hand, the cash to do that is tied up in various places, it's in a different country, it's in various interest-bearing bonds or shares that cannot be redeemed quickly, or it's even in future revenues that you've not received yet. And it wouldn't be efficient to have a massive cash float on hand in country-specific bank accounts, when that money could be invested profitably.

Must feel nice to be so valued.

Yes. It's actually uncommon for a business not to take loans out. You can see how much a public company owes in the balance sheet: https://finance.yahoo.com/quote/MSFT/balance-sheet/

If you fire when others are hiring. You will be seen as in trouble and sentiment will be negative towards you risking stock price, investment and loss of key persons you did not want to lose.

If you fire when everyone else is firing it is just part of the meta cycle and it is business as usual.

Overhiring is natural as a combined consequence of broad panning for best hires, preemptive competition squeezing and empire building relying on fresh young unthreathening meat.

Because they’ve identified poor performers or products / teams that no longer fit the strategy or market and need to be shut down.

The answers on here are ridiculous.

Flip the question on its head - why did Microsoft hire like 30-40k people the last 3 years?

Because they were staffing for projects and teams. Some projects got shutdown so the teams / staff is no longer needed.

That’s sort of a head-in-the-sand answer, there weren’t these big projects that needed to be staffed up through mid 2022 and cut by end of Q1 2023. I’m sure we can come up with one, maybe? But certainly doesn’t describe what happened

It’s all speculation and rumors unless you got insider knowledge of how the layoffs were organized specifically and the motivation behind them. How would you know what their strategy and goals were before and after layoffs?

Like I said this complaining of layoffs is ridiculous.

Most qualified people have no problem finding a job. I could get fired and have multiple offers within 2 weeks.

Get so good they can’t ignore you and network to make sure people know how good you are.

it’s really no different than this personal example:

I hired a lawn scaping guy after dealing with leaves and bushes by myself. The guy did a decent job the first time he serviced the yard. The subsequent times he showed up for 15 minutes trimmed the tiny grass area in front of my house and left, when he was supposed to do much more. I caught him on the ring camera and after 2-3 times of him coming by for just 15 mins to hit the yard with an edger and bill me $100 , I fired him.

Then I bought the tools and did my own yard work for a few months. I got tired of it and saw my neighbor had a hard working guy maintaining his yard. Got that guy hired and now I don’t do my own yard work anymore and the guy I hired is cheaper and more thorough when he does my landscaping.

Probably because everybody else is. If they've over-hired, they can fix matters a bit or if they're very good/careful with HR they can prune some deadwood. Or, it's just part of the plan to break the back of the WFH movement, thus removing worker agency.

> Or, it's just part of the plan to break the back of the WFH movement, thus removing worker agency.

Put the peasants in their place - business justification is just rationalisation

This is an interesting take. Basically an authoritarian crackdown to shut down a nascent worker rebellion before it really takes off.

As someone working at Microsoft I can actually say that they have continued supporting WFH and if anything are actually leaning even heavier into WFH-facilitation (at least in my division) lately. It’s been a big success for enabling cross-office cooperation and is seen as a pretty valuable differentiator vs SV-corps. I believe for the longest time, even when the stock and comp wasn’t so hot, Microsoft had a reputation for “the place with with work-life balance”.

I hope this is true. I also hope that any company bringing jobs that could be WFH into commuter-land again would STFU about climate actions. Unless their staff is walking to work, they're wasting time and stressing the environment so people can be seen rather than be effective.

That sounds great actually - I hope it continues.

Because they believe they'll make even more profits if they lay off those 10k people. Or, at least, that's what the owners (i.e. the current stock market sentiment, the board of directors) believe, and the CEO follows their tune.

It is not doing that great really, it just sounds like it. Sales was up 7% last quarter, profit 9%, but inflation is 10% year-on-year. So Microsoft is effective losing value.

> Sales was up 7% last quarter, profit 9%, but inflation is 10% year-on-year. So Microsoft is effective losing value.

To illustrate, suppose they sold $100 last year, or $25 per quarter. That means they sold $26.75 last quarter [a], of which $2.41 was profit [b]. Last year it was $2.25 [c]. Inflation means last year's profit bought as much as $2.48 today [d], i.e. real profit is down 3%.

[a] 25 x 107%*

[b] 26.75 x 9%*

[c] 25 x 9%*

[d] 2.25 x 110%*

Unless they're giving their employees annual raises that match inflation, this doesn't really seem like an explanation for layoffs, as the salary for their employees also declines in inflation-adjusted numbers.

If they are giving employees raises that match inflation, I wonder if they've decided that some layoffs while keeping the raise structure the same is better for morale than no layoffs but turning the annual raise percentages down a bit.

> wonder if they've decided that some layoffs while keeping the raise structure the same is better for morale than no layoffs but turning the annual raise percentages down a bit

Your competitors will pay real market for your best employees. Better to trim than spread the pain.

But that is just growth over previous Q/Y, so yes, they are losing value, but that is because of the increased costs due to inflation, and decrease in expected revenue due to inflation.

Their margin is still above the inflation. I wouldn't say they aren't doing great for the current economic conditions.

Layoffs though, are due to increased interest rate, which kinda correlates to losing value.

Inflation is ~5% yoy

The business case for lay offs doesn't necessarily require a deficit/net loss.

Probably just taking advange to strategically cut underperforming products and possibly individuals.

It sounds good to the shareholders.

All supplies a source of wage suppression pressure. It has zero to do with the savings from the fired worker.

It really does look like tacit collusion among tech companies to reduce wages.

It seems like collusion to appease the Fed to stop increasing rates.

Interview with Larry Summers, Former Secretary of the Treasury | The Problem with Jon Stewart

https://www.youtube.com/watch?v=tU3rGFyN5uQ

Jon Stewart is an incredible interviewer, he was able to expose Summers praising billions of dollars of corporate profits while completely disregarding people losing their jobs in almost the same sentence.

Some people produce less value than they cost.

This explanation assumes that Microsoft is accurate in its assessments of value.

They just have to be accurate enough on average with room for error. If they fire 90 unproductive workers and accidentally 10 productive ones, it could still be a net positive for the company, just on a financial level (morality aside).

It could be, but it's notoriously hard to predict. Those 10 productive workers could join (or form) a competitor and result in far more damage to revenue than was saved in labor costs across all 100 of the laid off workers, for example.

Everything in business is very difficult to predict and it's the realm of gut feelings and vague probabilities. Executives just make the best decisions they can.

I guess the problem is that "best" depends on perspective.

Everyone has a different perspective, but at the end of the day, some companies do better or worse than others to the benefit or detriment of the shareholders.

Every profitable company is accurate enough with its assessment of costs-vs-value-generated to "know" which employees are worth keeping, and which aren't

Companies don’t wait until a layoff to cut these employees.

> If Microsoft is doing so good why layoffs?

Because it is doing better than those layed off.

Cos they can. They feel like employees have lost their power and this is a good time for them to shed costs and show who's boss. It's very shitty but this is capitalism, the stock price will only go up with such moves due to "efficiency".

Reply on news.ycombinator.com