Zoho won’t offer pay hikes this year; Sridhar Vembu flags rising AI costs, seeks to avoid mass layoffs

Zoho Corp chief scientist and co-founder Sridhar Vembu has said the company will not offer its usual annual salary increases this year, citing sharply rising artificial intelligence (AI) costs, an uncertain business outlook for the software industry and a challenging geopolitical environment.

“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 apologised for not being able to avoid this,” Vembu said in a post on X today.

According to Vembu, AI has dramatically increased costs for the company, pointing to a fourfold increase in server prices required for data centres and a sharp rise in expenses as AI usage grows.

“The business outlook for software is uncertain and AI has raised costs dramatically with a) massive 4-fold increase in server prices which we need for data centers b) AI usage increasing rapidly, leading to much higher expenses, which we are trying to control,” he said.

“On top of that is the challenging geopolitical backdrop,” he added.

Vembu said Zoho was working to avoid mass layoffs, while warning that the outlook for software jobs in general was grim. The technology company has not increased its employee headcount for the past 18 months, he said.

Vembu said Zoho was in the middle of reinventing itself, with the next three to five years set to determine the outcome of that effort. He also thanked employees for understanding the company's situation.

Zoho grapples with rising AI costs

Vembu's comments come as software companies reassess the economics of AI development amid rising expenditure on computing infrastructure, data centres and large language models (LLMs).

Last month, he said the industry was beginning to confront the economics of escalating token usage and AI infrastructure investments, as LLM companies reassessed the pace and cost of AI development.

Zoho has been expanding its AI capabilities, from launching its proprietary Zia large language model in July last year to introducing its Agents Suite and Agent Studio. The company has also launched Zia Chat, an AI agent embedded in its business applications that can integrate with other agentic ecosystems using businesses' contextual data.

India is Zoho's second-largest revenue market after the US and one of its fastest-growing markets, with revenue rising 47% year-on-year in FY26.

However, the company has also faced pressure on profitability. Zoho's consolidated net profit margin declined from 34.8% in FY23 to 33.5% in FY24 and 27.8% in FY25, while expenses increased from ₹4,899 crore in FY24 to ₹6,234 crore in FY25.