Fear and Loathing in Seattle (Premium)

Build 2025 was a Microsoft event like no other, with the heady, optimistic AI announcements at the show overshadowed by a drumbeat of relentlessly bad news.

This isn't an exaggeration. I've been covering Microsoft professionally for over 30 years. I first visited the software giant's corporate campus in 1996 for the first Visual Studio "Boston" reviewer's workshop, and my experience at the Windows NT 5.0 Beta 2 reviewer's workshop in August 1998 inspired me to start the site that went on to become the SuperSite for Windows, the predecessor to this site. I have been to countless Microsoft events in the years since then, and I've spoken at two Windows launch events. But Build 2025 was unique. I have never experienced anything like this past week. Ever.

The juxtaposition of Microsoft's success and the problems it's now experiencing--mostly of its own making, oddly--couldn't be more stark.

On April 30, Microsoft announced quarterly revenues of over $70 billion, a gain of 13 percent year-over-year (YOY) and its best fiscal third quarter in history. Its net income of almost $26 billion (up 18 percent YOY) was likewise a record. The only record it didn't set in the quarter was its AI spending: Though it threw $21.4 billion down what many would uncharitably call a black hole of AI infrastructure (capex) spending, that figure was down $1 billion from the same quarter one year early. But no worries, Microsoft investors: In the post-earnings conference call, CEO Satya Nadella and CFO Amy Hood described that drop as a blip that will not be repeated in coming quarters. It's not just on track to hit the promised $80 billion in annual AI spending by the time its fiscal year ends June 30, it should exceed that figure handily. As I write this, Microsoft's market capitalization is $3.39 trillion, making it the biggest company in the world.

Despite this, Microsoft announced two weeks later that it was laying off 3 percent of its workforce. Its public statement about this incongruous change was as vague as it was terse, with the company admitting only that it was making "organizational changes" to address a "dynamic marketplace." This led to all kinds of speculation, and reports quickly emerged suggesting that this round of layoffs, unlike those earlier in the year, were not in any way related to performance. Indeed, they appeared to be entirely random, with cuts coming everywhere in the company across product groups, geographies, and organizational levels. That these layoffs occurred less than one week before Build 2025, one of only two major conferences that Microsoft will host this year, made the news all the more perplexing.

Generally speaking, when it comes to corporate financial matters, I can explain various activities easily enough if Microsoft or whatever company isn't particularly forthcoming. At the very least, we learn about the rationale behind "organizational changes" like this after the fact, by employees impacted by the change or...