In a statement to employees, Microsoft revealed today that 10,000 people would be laid off and made some modifications to its product lineup. In its Q2 earnings report that will be released next week, the software behemoth would write off $1.2 billion in expenses for severance pay, building rents, and “changes to our hardware portfolio.”
The phrase “platform shifts” is telling, but Nadella doesn’t go into detail about the changes that have been done or will be made to the company’s hardware assortment. Currently, Microsoft sells a variety of devices, such as Xbox gaming consoles, PC add-ons, Surface peripherals, HoloLens headsets, and much more.
Before the epidemic began, Nadella was considering a future beyond Windows, Android, and iOS even though the company made significant investments in Windows 11 during the epidemic and the surge in PC sales. In January 2020, he even made the joke that Windows might one day be dubbed Azure Edge, making it abundantly obvious that Microsoft’s largest hardware business is in the cloud.
Following a surge in laptop sales, the company is currently coping with a new decline in the PC market as well as issues with its HoloLens technology. Are Windows and Microsoft’s riskier hardware bets returning to reality now?
Microsoft included sales of the Surface, HoloLens, and PC accessories under the heading “devices revenue” in its October financial release. It observed a 2% growth in Surface revenue, or devices revenue presently. However, the company foresaw a significant decline in devices revenue of almost 30% in its upcoming earnings, which are expected on Tuesday.
Microsoft predicted a Windows OEM revenue loss in the mid 30% range for its financial Q2 2023 results in addition to this devices revenue hit. The difficulties Microsoft has had with HoloLens over the past year have also been well-documented, particularly after Alex Kipman, the former HoloLens boss, left the organization amid claims of misconduct. According to reports, the tech-giant abandoned plans for a HoloLens 3, but the company recently gave a hint that, at the appropriate time, it would release a “significant update” to the technology.
As a result of Congress’s denial of the Army’s request to purchase up to 6,900 headsets built on HoloLens hardware, HoloLens is now a part of Microsoft’s updated hardware lineup. After the US Army defeat, the HoloLens section has experienced employment losses today.
Beyond HoloLens, the company might also be considering alterations to its Surface portfolio. The pandemic struck shortly after Microsoft’s Surface Hub 2 was created for a futuristic office. Microsoft acted swiftly in response by postponing the release of its exclusive Surface Hub 2X processor update cartridge and even Windows 10X products such as the Surface Neo.
Microsoft continued with the launch of its 85-inch Surface Hub 2S for $21,999.99 in January 2021 despite the epidemic forcing many individuals to work remotely. Additionally, a dual-screen Surface Duo 3 is said to have been abandoned by Microsoft. The software developer is apparently switching to a completely foldable design in place of the more conventional slab smartphone designs that would ship as more of a Surface smartphone device. Cuts to hardware are not exclusive to Microsoft.
Late last year, after combining certain teams and programs, Amazon, its major cloud rival, made employment cuts in its services and devices division. Investors will be interested to learn how the rest of Microsoft’s businesses are doing given the $1.2 billion charge added on top of the anticipated significant decline in Windows OEM sales and device revenues this quarter. The company also announced the layoff of 10,000 employees.
