Microsoft hints at workforce reduction despite 18% revenue hike in Q3 FY26

Microsoft is contemplating a shift in its hiring strategy, potentially leading to team reductions and continued layoffs in the near future. CFO Amy Hood has signaled that the tech giant might decrease its workforce as it pivots towards enhancing investments in artificial intelligence, restructuring operations, and prioritizing cost efficiency. This announcement coincides with the release of the company's quarterly earnings report for FY26, where Hood elaborated on Microsoft's expectations for the upcoming financial year, which will run from July 2026 to June 2027. She remarked, "We continue to evolve how we operate to increase our pace and agility, and therefore, we expect headcount to decrease year over year." In an internal memo circulated prior to the earnings call, Hood emphasized a strategy to form smaller, more focused teams, which would clarify responsibilities and enhance employee accountability. The memo also indicated ongoing restructuring efforts aimed at boosting efficiency within the organization. Recently, Microsoft extended an offer for voluntary retirement to approximately 7% of its U.S. workforce, impacting nearly 8,750 employees. Despite these workforce reductions, the latest earnings report revealed a remarkable 18% revenue increase, culminating in $82.9 billion. CEO Satya Nadella noted, "We are focused on delivering cloud and AI infrastructure and solutions that empower every business to maximize their outcomes in the agentic computing era." He highlighted that the company’s AI segment has surpassed an annual revenue run rate of $37 billion, a staggering 123% increase year-over-year. Additionally, Intelligent Cloud revenue saw a 30% rise, reaching $34.7 billion, with plans to invest further in AI infrastructure. In a strategic shift, Microsoft has restructured its agreement with OpenAI, now set to receive a 20% share of the startup's revenue through 2030, regardless of any technological advancements. However, the company will no longer hold exclusive rights to OpenAI's products and AI models. Meanwhile, OpenAI is expanding its collaboration with Amazon, integrating its models and coding tools into AWS.