One of India’s most admired software companies has delivered sobering news to its employees. Zoho Corporation has frozen annual salary hikes for 2026, blaming a dramatic rise in artificial intelligence infrastructure costs and an uncertain outlook for the global software market.
The announcement came directly from Sridhar Vembu, Zoho’s co-founder and chief scientist, in a post on X on Monday, October 12. In a candid note, Vembu said the company has cut its marketing budget, told employees it cannot offer its usual pay increase this year, and is focused on avoiding mass layoffs in what he described as a grim environment for software jobs.
“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 wrote, adding that the company is “working hard to avoid mass layoffs” while the outlook for software jobs in general remains bleak.
AI costs have exploded, says Vembu
At the heart of the decision is the spiraling cost of building and running AI systems. Vembu pointed to a four-fold increase in server prices needed for data centers, driven by surging demand for AI hardware. At the same time, rapidly growing AI usage across Zoho’s products has pushed operating expenses much higher, and the company is working to bring those costs under control.
“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 wrote. He also cited a challenging geopolitical backdrop that has made the business outlook for software uncertain.
No new hiring in 18 months
The pay freeze is not the first sign of belt-tightening at Zoho. Vembu revealed that the company has not grown its employee count in 18 months, a detail that underlines how cautious even profitable Indian software firms have become about adding headcount.
Zoho, headquartered in rural Tamil Nadu and privately held, employs over 15,000 people and is known for its profitable, bootstrapped growth. Unlike listed IT services companies, it does not face quarterly shareholder pressure, which makes its public caution about costs especially notable. If a company like Zoho is freezing hikes, industry watchers say, it signals deeper stress across the Indian software ecosystem.
What this signals for India’s IT job market
Vembu’s note lands at a moment when India’s technology workforce is already anxious. Several large IT firms have slowed hiring, shifted toward AI-skilled talent, and are automating entry-level work. His warning that “the next 3-5 years will decide how our reinvention has worked” reflects an industry-wide pivot: companies are reinventing themselves around AI while trying to manage the transition without large-scale layoffs.
The post drew wide attention on social media, with many employees and industry observers praising Vembu’s transparency. In a market where job cuts are often communicated through terse HR memos, a founder publicly apologizing to staff and asking them to “pray for us” stood out for its honesty.
The bigger picture
Zoho’s move highlights a paradox of the AI boom. While AI promises productivity gains, the upfront investment in compute, infrastructure, and talent is heavy, and returns take time. For product companies like Zoho, which bundle AI into tools such as Zoho’s office and CRM suites, rising usage by customers translates directly into rising server bills.
Vembu acknowledged the support of most employees, saying he was thankful they understand the situation. “We are in the middle of reinventing ourselves. The next 3-5 years will decide how our reinvention has worked,” he wrote.
For now, Zoho’s message is clear: no hikes in 2026, tighter budgets, and a hard focus on keeping the team intact through the transition.
FAQs
Q: Has Zoho frozen salary hikes for 2026?
Yes. Co-founder Sridhar Vembu announced on October 12 that Zoho will not offer its usual annual pay increase in 2026 for any employees.
Q: Why is Zoho freezing salary hikes?
Rising AI infrastructure costs, including a four-fold increase in server prices, higher AI usage expenses, and an uncertain global software market outlook.
Q: Is Zoho planning layoffs?
Vembu said the company is working hard to avoid mass layoffs, but warned that the outlook for software jobs in general is grim.
Q: Has Zoho been hiring recently?
No. Vembu revealed that Zoho has not grown its employee headcount in the past 18 months.
Q: What else has Zoho cut to control costs?
The company has reduced its marketing budget as part of broader efforts to rein in spending.
India’s software industry is watching closely. If Zoho’s bet pays off and it navigates the AI transition without layoffs, it could become a template for the rest of the sector. If not, Vembu’s warning may prove prescient.
