Cloud storage provider Dropbox will lay off 16% of its staff and reinvest in the growing area of artificial intelligence, according to a memo posted to the company’s public web site and addressed to employees from CEO and co-founder Drew Houston. That amounts to about 500 employees.

Houston said that while the business is profitable, the company’s growth has been slowing. He blamed the natural maturation of the existing business as well as “headwinds from the economic downturn.” Houston indicated that the company would be taking the opportunity to redirect its resources into hotter market areas.

Dropbox Financial Performance Still Good

In an 8-K filing with the U.S. Security and Exchange Commission (SEC), Dropbox said that it expects its Q1 2023 financial results to be in-line or above its guidance ranges for revenue, constant currency revenue, and non-GAAP operating margin.

The filing also states that the company will take charges of $37 million to $42 million in connection with the layoffs, primarily consisting of cash expenditures for severance payments, employee benefits and related costs. Most of these charges will be taken in Q2 2023, and substantially all of the charges will have been incurred by the end of 2023, according to the filing.

Dropbox Wants to Redirect Investments to AI

Houston also cited the growth of artificial intelligence (AI) as a factor in the layoffs, indicating that Dropbox would likely be redirecting some of its resources to this hot market area to remain competitive in that expanding potential market.

Houston said of these redirected resources:

“In an ideal world we’d simply shift people from one team to another. And we’ve done that wherever possible. However, our next stage of growth requires a different mix of skill sets, particularly in AI and early-stage product development. We’ve been bringing in great talent in these areas over the last couple years and we’ll need even more.”

Houston added that some areas of investment that had shown promise previously have more limited potential in the downturn.

What Organizational Changes are Happening At Dropbox?

Houston said that the company will consolidate its core and document workflows businesses to reflect renewed focus on integrating customers’ key workflows within the core FSS product. The company will also realign business teams to reflect proportionate adjustments to the product development teams they support.

Houston added:

“These transitions are never easy, but I’m determined to ensure that Dropbox is at the forefront of the AI era, just as we were at the forefront of the shift to mobile and the cloud. We’ll need all hands on deck as machine intelligence gives us the tools to reimagine our existing businesses and invent new ones. And I'm committed to doing everything in my power to best position ourselves for the future and unlock our full potential.”