Baidu Inc. (BIDU) is trimming its workforce in a restructuring that kicked off this week and will continue through the end of the year, according to a Friday report from Reuters. For a company that employs nearly 36,000 people, this is shaping up to be more than just tinkering around the edges.

Some Teams Could Lose 40% of Staff

The overall headcount reduction remains unclear, but the cuts vary significantly by business unit and employee performance ratings. Some teams could see reductions as steep as 40%, Reuters reported, citing sources familiar with the matter. Baidu had 35,900 employees as of the end of last year, according to its annual report. The company didn't immediately respond to requests for comment.

The mobile ecosystem group is taking the hardest hit, while positions related to AI and cloud computing are mostly spared from the chopping block. That tells you something about where Baidu thinks its future lies.

Two Quarters of Declining Revenue

The layoffs come on the heels of some genuinely rough financial results. Baidu posted its second straight quarterly revenue decline last week, with total revenue down 7% and online advertising revenue plummeting 18% in the third quarter. The company also reported a loss of 11.23 billion yuan (about $1.59 billion) for the period.

U.S.-listed shares of Baidu have dropped more than 8% over the past month, though the stock is still up 40.6% year-to-date. The company operates China's dominant search engine and competes with Alphabet's Google (GOOGL) (GOOG) on a global scale.

Here's the problem: Baidu has poured years of investment into AI development, but its bread-and-butter online advertising business keeps losing market share to social media platforms like RedNote and ByteDance's Douyin. That's a painful squeeze when your legacy business funds your future bets.

The irony is particularly sharp because Baidu was actually first out of the gate among major Chinese tech firms with Ernie, its ChatGPT-style AI service launched in 2023. But being first doesn't guarantee staying ahead. Alibaba (BABA) and AI startup DeepSeek have since gained ground, intensifying competition in a space where Baidu desperately needs to win.