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Microsoft's Ballmer: Job cuts forced by 'once-in-a-lifetime economic conditions'

January 22, 2009 | 11:02 am

Msft Microsoft plans to fire people and hire people as it deals with what Chief Executive Steve Ballmer today called a "once-in-a-lifetime set of economic conditions." And the company thinks things will get worse before they get better.

Executives from the Redmond, Wash., company gave Wall Street more specifics about their plans for dealing with the deteriorating global economy. They include cutting thousands of jobs in response to slowing sales of the PCs that run its Windows and Office software and making some hires in areas of potential growth such as Web search.

"We’re certainly in the midst of a once-in-a-lifetime set of economic conditions," Ballmer said during a conference call after the company announced weaker-than-expected quarterly earnings and as many as 5,000 layoffs, or 5.5% of its workforce. "The economy is resetting to a lower level of business and consumer spending."

As businesses and consumers have reduced spending and bought fewer PCs, Office and Windows sales also have slowed. Microsoft's client business, which includes those products, saw revenue fall 8% to $3.9 billion in its fiscal first quarter, which ended Dec. 31. PC spending, which the company had anticipated would grow 10%-12%, was flat, said Bill Koefoed, general manager of investor relations.

Ballmer said that as many as 5,000 Microsoft jobs would be cut, as well as thousands of external jobs held by independent contractors and vendors. The reductions will be in the areas of research and development, marketing, sales, finance, legal, human resources and information technology, and about 1,400 of those cuts will occur today. However, the company does anticipate adding 2,000 to 3,000 jobs in ...

... areas where it sees opportunity, including search, where it has lagged far behind Google.

The company’s first widespread layoffs come as economic conditions "deteriorated more than we expected," said Chris Liddell, Microsoft's chief financial officer. The slowdown was especially pronounced in December, he said. Liddell said he expected conditions to worsen over the next few months.

Despite the cuts, analysts on the call questioned whether Microsoft was reacting swiftly enough to the economic conditions, pointing out that the company’s operating expenses are growing even as revenue growth slows, to only 2% last quarter. Operating expenses rose 5%, to $31.7 billion, in the last six months of 2008 over the same period the previous year.

Liddell defended the cuts as “the right degree of action,” saying it was difficult to anticipate whether the economy would continue to worsen as rapidly as it did in December, or whether the pace would slow.

Microsoft sold a record 6 million Xbox 360 game consoles in the quarter and saw online advertising revenue grow 7% in a softening ad climate. The advertising growth was in search, Liddell said, not in online banners and other display ads. Microsoft made an offer to buy Yahoo last year in a deal that would have strengthened its search advertising offerings, but Yahoo rebuffed the deal. Liddell said on the call today that the deal was officially over, although executives again expressed interest in Yahoo's assets. (The two companies have discussed combining their search businesses.)

Liddell also said he anticipated that Microsoft would continue to purchase small- and medium-sized companies this year. He then clarified that he had not been referring to Yahoo.

The tech industry this month has reported widespread losses. Sony said today it would have its first annual net loss in 14 years, and EBay reported its first-ever drop in quarterly revenue Wednesday. Ballmer said that although the economy might delay the growth of the technology industry, he was optimistic about its future.

"We remain incredibly positive on Microsoft and the tech industry and opportunity for innovation," he said. "Yet now is the time to ask critically which of our investments should be prioritized, how can we get the same amount of work done for less."

-- Alana Semuels

Photo: eMaringolo via Flickr

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