New Delhi — Indian software company Zoho has suspended its usual annual salary increases and reduced marketing spending as rising artificial intelligence infrastructure costs and uncertainty in the software industry put pressure on its finances, co-founder and Chief Scientist Sridhar Vembu said Tuesday.
In a post on X, Vembu said the company is facing sharply higher expenses as demand for AI computing resources increases, while the broader business outlook remains uncertain.
He said server prices for data centers have increased fourfold, adding to operating costs as AI usage continues to expand.
“The business outlook for software is uncertain and AI has raised costs dramatically,” Vembu said.
The company is taking steps to contain expenses, including reducing its marketing budget and postponing customary employee pay increases.
“We have cut down on our marketing budget. We have also told our employees that we cannot have our usual pay increase this year. I have apologized for not being able to avoid this,” Vembu said.
He also expressed concern about employment prospects across the software industry, warning that companies face difficult decisions as AI changes the economics of developing and delivering software.
“We will work hard to avoid mass layoffs but outlook for software jobs in general is grim. We have not been growing our employee count for 18 months now,” he said.
Vembu thanked employees for their understanding as Zoho adjusts its operations to address rising costs and changing market conditions.
He said the company is undertaking a broader transformation that could determine its competitive position over the next several years.
“We are in middle of reinventing ourselves. Next 3-5 years will decide how our reinvention has worked. Please pray for us,” Vembu wrote.
The spending restrictions come as software companies face growing pressure to invest in AI infrastructure while adapting their products and services to rapidly evolving technology.
Vembu also cited geopolitical uncertainty as another challenge affecting the industry’s outlook.
His latest comments follow earlier warnings about the financial risks associated with the global AI investment boom.
In May, Vembu questioned whether soaring valuations among major technology companies were sustainable, suggesting that investor enthusiasm surrounding artificial intelligence had created conditions resembling a market bubble that could exceed the excesses of the dot-com era.
He pointed to elevated price-to-sales ratios among major technology companies, including Nvidia, Apple, Alphabet, Microsoft, Meta Platforms and Micron Technology, arguing that some valuations appeared increasingly disconnected from underlying business fundamentals.
Vembu also referenced comments made by former Sun Microsystems CEO Scott McNealy following the collapse of the dot-com bubble in the early 2000s.
McNealy had argued that companies trading at 10 times their annual revenue would need exceptional long-term growth and profitability to justify such valuations.
Vembu’s latest remarks reflect concerns about the rising financial burden of AI adoption, even as software companies invest heavily in the technology to remain competitive.
For Zoho, the immediate priority is managing expenses and adapting its business model while attempting to avoid widespread job cuts during a period of significant industry change. (Source: IANS)
