Freshworks cuts 11% of workforce as AI writes over half its code, reshaping software development

Freshworks Layoffs Signal Major Shift in Software Development

Freshworks announced Tuesday it will cut 11% of its workforce, affecting approximately 500 employees globally, as artificial intelligence fundamentally reshapes how the business software company operates 1

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. The San Mateo, California-based company joins a growing wave of tech industry layoffs driven by AI adoption, with peer Atlassian slashing roughly 10% of jobs last month 1

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CEO Dennis Woodside told Reuters the decision stems directly from AI use in product development and automation of routine tasks across the business. "Over half of our code is written by AI," Woodside explained, adding that automation had reduced "rote work that technology can take care of" 1

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. The restructuring will incur one-time charges of about $8 million, with the majority hitting the current quarter 2

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AI in Software Industry Transforms Engineering Workflows

The AI-driven job cuts are coming largely from the engineering side of the business, where AI has dramatically accelerated product development cycles. Woodside elaborated on this transformation, explaining that "you no longer need massive product requirement documents. You can quickly create interactive prototypes in tools like Figma or Lovable, show them directly to customers, iterate rapidly and then move those into code generation workflows" 3

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This shift means engineers can "simply get more done than before," though Woodside noted companies will need a different type of engineer—those comfortable working with AI-native workflows 3

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. The CEO expects larger software companies to become leaner and more efficient, while smaller firms scale without significantly increasing headcount 3

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Restructuring Aligns with Strategic Focus on Employee Experience Business

Beyond AI automation, Freshworks is consolidating its go-to-market strategy to focus more heavily on its Employee Experience business, which includes IT service management software Freshservice 2

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. Savings from merging sales teams, reducing management layers, and automating work will be reinvested in this EX division 1

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Woodside said customer momentum was particularly strong for the Employee Experience business, with accounts spending more than $100,000 up 29% year-on-year 2

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. The company secured its biggest land deal ever with a large nutrition company that had been a 10-year customer of a competitor, citing enterprise-grade scale, faster time to value, and AI capabilities 2

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Revenue Growth Amid Operating Loss and Market Pressures

Despite the restructuring, Freshworks reported revenue growth of 16% year-on-year to $228.6 million in Q1, exceeding analyst estimates of $223.24 million 1

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. However, the company slipped back into an operating loss of $8.1 million in Q1 after turning a profit of $39.7 million in Q4 2025 2

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The company expects second-quarter revenue between $232 million and $235 million, with the midpoint above analysts' average estimate of $232.7 million 1

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. Yet the share price has fallen dramatically from a high of $16.14 to $9.19, with market capitalization now at about $2.6 billion—nearly 80% below its peak following its 2021 listing at a $10 billion valuation 3

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AI Reshapes Software Sector Amid Existential Questions

AI has reset expectations across the SaaS sector, pushing investors to question pricing power, product defensibility, and long-term margins for non-AI-native companies, leading to valuation compression across the industry 3

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. AI tools from companies like Anthropic are seen as potential existential threats to traditional software makers, hammering shares of companies ranging from Freshworks to larger rivals such as Salesforce and ServiceNow 1

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Woodside maintained that customer enthusiasm for AI remains strong, with AI now core to most pitches. "In more than 60% of our large deals, it's a paid component from day one and is also driving expansion," he said 3

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. However, he emphasized customers aren't buying purely for AI—they need comprehensive systems to manage interactions and maintain visibility into their software and hardware estate 3

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According to Layoffs.fyi, which tracks tech job cuts globally, 92,462 employees have lost their jobs this year 1

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. Woodside told ET the company does not plan further layoffs but will focus on maintaining a leaner team, being "very thoughtful about any additional headcount...or backfilling existing roles" 3

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. This marks Freshworks' first major workforce reduction since 2024, when it cut around 13% of staff, or about 660 employees globally 3

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