[HN Gopher] If Microsoft is doing so good why layoffs?
___________________________________________________________________
If Microsoft is doing so good why layoffs?
Microsoft released earnings yesterday and showed excellent perf on
all fronts. Why do 10k layoffs then?
Author : eclectic29
Score : 32 points
Date : 2023-04-26 16:43 UTC (6 hours ago)
| gcheong wrote:
| It sounds good to the shareholders.
| sitkack wrote:
| All supplies a source of wage suppression pressure. It has zero
| to do with the savings from the fired worker.
| musicale wrote:
| It really does look like tacit collusion among tech companies
| to reduce wages.
| mcast wrote:
| It seems like collusion to appease the Fed to stop
| increasing rates.
| sitkack wrote:
| Interview with Larry Summers, Former Secretary of the
| Treasury | The Problem with Jon Stewart
|
| https://www.youtube.com/watch?v=tU3rGFyN5uQ
| mcast wrote:
| 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.
| xyzzy4747 wrote:
| Some people produce less value than they cost.
| yellowapple wrote:
| This explanation assumes that Microsoft is accurate in its
| assessments of value.
| xyzzy4747 wrote:
| 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).
| websitejanitor wrote:
| 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.
| jalino23 wrote:
| microsoft needs loans?
| ShuffleBoard wrote:
| 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.
| websitejanitor wrote:
| 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/
| giaour wrote:
| 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."
| Workaccount2 wrote:
| Good read, thanks
| kevinh456 wrote:
| 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.
| sarlalian wrote:
| 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.
| rwmj wrote:
| 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.
| ChatGTP wrote:
| Must feel nice to be so valued.
| sbdaman wrote:
| The business case for lay offs doesn't necessarily require a
| deficit/net loss.
| Someone1234 wrote:
| 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).
| tester756 wrote:
| >Large companies over-hire to short-term inflate the share
| price
|
| src on that?
| hudsonjr wrote:
| 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.
| michaelbrave wrote:
| 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.
| skywhopper wrote:
| 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".
| badpun wrote:
| 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.
| mpol wrote:
| 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.
| JumpCrisscross wrote:
| > _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%*
| pcthrowaway wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| giantg2 wrote:
| Probably just taking advange to strategically cut underperforming
| products and possibly individuals.
| gt565k wrote:
| 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.
| refulgentis wrote:
| 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
| musicale wrote:
| 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...
| gumballindie wrote:
| > 4. They believe they can automate existing jobs and/or
| replace them with AI.
|
| Yawn. It's more about disciplining the workforce.
| jleyank wrote:
| 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.
| ClumsyPilot wrote:
| > 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
| musicale wrote:
| This is an interesting take. Basically an authoritarian
| crackdown to shut down a nascent worker rebellion before it
| really takes off.
| cronin101 wrote:
| 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".
___________________________________________________________________
(page generated 2023-04-26 23:03 UTC)