Tech • AI • Robotics • Game
Microsoft: why 27% of employees are receiving severance offers
8/10TL;DR
Microsoft is using voluntary departures and price increases as financial buffers to protect margins while massive AI and data-center investments drive a sharp rise in depreciation and fixed costs.
KEY POINTS
A broad but selective departure offer
On October 26, Microsoft offered roughly 60,000 employees, about one in four, the option to leave with severance. Internal expectations appear far lower than the headline figure, with likely take-up estimated at 10% to 20%, or about 6,000 to 12,000 departures from a workforce of roughly 223,000. The plan is notable less for its size than for which teams were included and excluded.
Copilot teams included, data-center teams protected
Teams tied to Xbox, Windows, Finance, HR, and parts of Microsoft Copilot and other AI software operations were included in the offer. Left out were groups tied to data centers, sales, marketing, security, and quantum computing. That split suggests the company is protecting functions essential to infrastructure expansion and revenue capture while treating layers of software and support as adjustable costs.
The accounting pressure behind the cuts
The main financial driver is not weak demand. It is the surge in depreciation, the expense that spreads the cost of machines over time. At Microsoft, depreciation rose from about $15 billion in fiscal 2024 to roughly $22 billion the following year and climbed further in the year ended last June, more than doubling in two years while revenue rose by about 35%.
Huge investment, tight margin promises
Chief Financial Officer Amy Hood said investment would keep rising in fiscal 2027 after roughly $145 billion in fiscal 2026, largely for data centers. At the same time, management said operating margin would fall by less than a point. Because depreciation on already purchased equipment is locked in and revenue depends on customers, the most flexible lever left is operating expense, especially payroll.
Salaries are being squeezed to fund infrastructure
Even if departures reach 12,000, estimated annual savings of roughly $1.5 billion to $3 billion would cover only a fraction of the latest annual increase in depreciation, put at around $12 billion. That means the departures do not transform the economics of the business on their own. They mainly help keep costs aligned with commitments made to shareholders as the infrastructure bill rises.
A shift from software economics to utility-style economics
For decades, Microsoft operated like a software company, where margins scale with selling more products built by relatively fixed teams. Its current capital intensity now looks closer to infrastructure businesses. In fiscal 2024, the company reinvested about 44% of revenue including leases, or 35% without them, up from 23% two years earlier, roughly in line with an electric utility and far above many telecom buildout periods.
Leases lock in years of fixed costs
The company has also relied heavily on leasing. As of June 30, Microsoft had signed about $329 billion in lease commitments, mostly for future data centers starting between 2027 and 2033 and lasting up to 20 years. Three months earlier that figure stood near $197 billion, implying more than $130 billion in future rent added in a single quarter.
Why “voluntary” matters
Voluntary programs reduce legal and political friction compared with layoffs because the employee formally chooses to leave. Microsoft has repeatedly used the language of choice, including severance offers for lower performers instead of performance plans and earlier retirement packages. The approach shifts moral responsibility away from management and can be cheaper than case-by-case dismissals.
The risk of adverse selection
Voluntary exits can also backfire by encouraging the most employable workers to take the money and leave first. A senior engineer with outside offers may view severance as a bonus for a move already under consideration, while less mobile workers stay put. That helps explain why security, certain strategic engineering roles, and infrastructure-heavy teams appear to be ring-fenced.
Customers are the other shock absorber
Employees are not the only group absorbing the strain. On June 1, 2026, Microsoft raised prices on many Microsoft 365 business plans, including 8% on E3, 17% on the small-business basic offer, and up to 33% on some frontline-worker licenses. Officially tied to security and AI features, the increases also show how the company can support margins externally while cutting costs internally.
CONCLUSION
The pattern points to a company becoming more like an infrastructure operator, with data centers and leases setting the pace of its economics. In that model, the main buffers against rising machine costs are headcount and customer pricing, not the promise that AI alone will replace workers.
Ask a question