Ahead of Its Earnings Report, Microsoft Offers 60,000 Employees Voluntary Departure Packages

Original Article | Odaily@OdailyChina)

Author | Golem (@web3_golem)

After U.S. markets close this Wednesday (October 28), Microsoft will release its financial results for the first quarter of fiscal year 2027. Yet just before this critical juncture, Microsoft suddenly offered voluntary severance packages to approximately 60,000 employees. Microsoft Chief Human Resources Officer Amy Coleman stated that the program applies only to employees at job grade 70 (vice president) and below in teams based in Canada, India, the United Kingdom, and the United States.

According to people familiar with the matter cited in a report, the departments participating in this program include not only employees from Copilot, Xbox, Windows, finance, legal, and human resources teams, but even AI-related departments such as AI Experiences, CoreAI, Microsoft Cloud + AI, and Microsoft AI teams. Only employees working in data centers, marketing, business operations, quantum computing, and cybersecurity are excluded from the program.

As of the end of June this year, Microsoft had a total workforce of 223,000 employees, including approximately 77,000 in product R&D, 43,000 in sales and marketing, 14,000 in general administration, and 89,000 in operations. Although this voluntary severance program does not mean Microsoft intends to lay off 60,000 people, the number of eligible employees alone exceeds 25% of the total workforce, essentially covering all employee categories.

Since the start of this year, Microsoft has undergone several rounds of personnel adjustments. In April, Microsoft rolled out a voluntary retirement program to approximately 8,750 employees, with more than 30% ultimately choosing to accept; in July, Microsoft announced the layoff of approximately 4,800 people.

It has become commonplace this year for major internet companies to shed employees under the banner of an AI productivity revolution, but Microsoft's voluntary severance program also includes some AI product departments, with only AI data centers spared. This reveals another trend at Microsoft: amid massive AI investment, spending on AI infrastructure is prioritized far above AI products or business operations. Microsoft is aggressively tightening labor costs while protecting critical AI infrastructure investments.

Labor Costs Give Way, AI Infrastructure Takes Priority

Microsoft's inclusion of AI department employees in the voluntary severance program does not mean it is scaling back AI spending.

On July 29 this year, Microsoft reported results for the fourth quarter of fiscal year 2026, with quarterly capital expenditures reaching $41 billion, up approximately 70% year-over-year, of which about two-thirds were short-lived assets (primarily CPUs and GPUs). The company expects capital expenditures for the first quarter of fiscal year 2027 to reach approximately $50 billion.

Therefore, Microsoft's AI investment remains enormous; it simply still believes that computing power matters more than talent at this stage. The reasoning is not hard to understand: competition in the AI market is inherently capital-intensive. Investment in GPUs, servers, and data centers is more amenable to quantitative analysis, and once this infrastructure is in place, Microsoft can maintain its competitive advantage in the cloud computing and AI services markets. Thus, compared with talent investment, Microsoft has prioritized infrastructure spending that produces more visible results and is more directly tied to competitiveness.

But the question is: if Microsoft is squeezing labor costs to free up room for ever-expanding AI infrastructure investment, then these investments need to prove they are worth it. This is also the question the market has been asking AI companies over the past few months.

Even Microsoft's strong stock performance in its previous earnings season was attributable to the market's reassessment of capital expenditure expectations.

After Microsoft reported fourth-quarter fiscal year 2026 results in July, its stock rose more than 8%, making it the only major AI company whose stock rose after earnings. In addition to Azure's cloud business growing faster than expected, another important factor was Microsoft lowering its fiscal year 2026 capital expenditure forecast from approximately $190 billion to about $175 billion.

Although the downward revision was merely due to Microsoft adjusting the accounting treatment of data center leases rather than an actual reduction in AI investment—and Microsoft also stated that excluding this adjustment, its 2026 investment expectations had not materially changed—the market still reacted positively to the change in spending expectations, viewing it as Microsoft safeguarding profitability and cash flow while pursuing a larger scale of AI investment.

This Week's Earnings Will Test Microsoft's AI Spending

After U.S. markets close on October 28, Microsoft will report results for the first quarter of fiscal year 2027. At that time, the market's focus will be not only on Microsoft's business growth rate but also on the company's previously guided quarterly capital expenditure outlook of more than $50 billion, and whether AI investment can begin to translate into clearer commercial returns rather than merely a reduction on paper.

Specifically, several issues are worth watching:

First, whether Azure's growth can continue to exceed market expectations. The cloud business is an important channel for Microsoft to capture enterprise AI demand. If computing infrastructure buildout can continue to translate into cloud service revenue growth, then massive capital expenditures will have a more direct commercial justification.

Second, whether the commercialization of AI products such as Copilot can advance further. Microsoft has invested substantial resources in integrating AI capabilities into office software, developer tools, and enterprise services, but judging from the inclusion of these AI product departments in the voluntary severance program, the results may not be ideal.

Finally, and most importantly, whether Microsoft's profit margins and cash flow can remain at healthy levels as its AI capital expenditures continue to climb. Microsoft can control some operating costs by streamlining its organization and spend money where it believes it is most valuable, but the ultimate pricing power still belongs to the market.