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

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

Comments

[KJ]

Is it just me, or does it seem like some companies are taking advantage of the economic slump to downsize solely due to greed? Microsoft ONLY earned a NET PROFIT of $3.8 BILLION in the last THREE MONTHS, and OMG, we need to fire people!! Two questions: 1) If you could do without these 5,000 people in the first place, why are they on your payroll, and 2) exactly how much NET PROFIT do you have to make every THREE MONTHS?

We're talking NET PROFIT here... AFTER ALL EXPENSES are paid. Forgive me if i don't understand big business, but this totally seems rooted in greed. Isn't this what led to the economic meltdown in the first place? The technology sector laid off almost 20,000 people in the first 21 days of January 09 alone. And MOST of those company layoffs were due to the fact that NET PROFITS were down (at most) 8%. OMG... eight whole percent. Let's lay off 50% of the workforce then... we certainly can't afford to spend all that money on people. Surely the products can develop and ship themselves. This is the automated, paperless office age. Isn't it?

[Eduardo]

Steve Jobs and Apple Inc. must be having a laugh considering that Apple posted a profit during their first quarter conference call yesterday.

[b_reynaldo]

So this is why Microsoft wants an unlimited number of H1Bs????

[Paul]

Microsoft continues to move toward irrelevancy... this latest gimmick is a kick in the gut to those folks at Microsoft who sweat blood and tears in spite of the fool management to make them what they are today.

Go Apple! (Boy, I'm glad I turned down that MS job offer )

[maphound]

Microsoft is stupid for laying people off. The company has billions of dollars in cash reserves, which is only a fraction of their payroll. The announcement of the layoffs probably cost them more by reducing the price of their stock market shares than it would have cost them if they would have used cash reserves for a year or two for payroll.

[JOSE LUIS REVILLA ESCUDERO]

LEHMAN down, GM down, Citi, Chrysler ... Is AMERICA really hurt ?

PONTIAC, BUICK, CHEVROLET... the "American dreamt" brands, the symbol of an era in America.
The wish of many teenagers that then became great personalities around the globe.

But, this was a forecasted end. TOYOTA has been for many years, the real revolution in the american auto industry. Together with NISSAN, both japanese manufacturers, leaded the auto sales market for many years in a row.

Afterwards, came the korean cars... the asian conquer of the american auto corporations.

Is this the sign of an hegemony change ?... Is AMERICA really that hurt ?
Is competitiveness the key crack-down factor for this consequences ?

The US will always mean marketing, show, branding, globality, with its own values and essence. But, is this enough to keep US sovereignity in the planet ??

AMERICA has voted for a change. Barack Obama, the first black president, meant a new change era and a barn of hopes for many americans. But is it enough with a good carisma and beautiful words ??

USA is now playing a tough game. The game of competitiveness, the game of innovation, the new rules of capitalism...

Can AMERICA workers compete with the 24-hour turns of japanese or chinese workers ?
Can AMERICA export more than import ?
Can AMERICA reissue the huge external debt owned by CHINA now ?

Does anyone know that the main owner of the USA is CHINA ?

Yes, the main owners of US debt is CHINA. If CHINA decides to do it, US Dollar can dissapear.

Nowadays, CHINA has lived of US imports. Therefore, CHINA has accumulated vast deposits of T-bonds and US Dollars. This has been the reason for the dollar stability.
Once CHINA develops their internal consumer rates, or begin diversifying their exports, CHINA will be in position to change US dollars for other currencies. Then, US Dollar will be dead.

Is AMERICA ready for this era ?
Does Barack Obama has a real plan to put a brake on this dynamic ?

Huge challenges ahead. But, for sure, the only opportunity for AMERICA is not to lose their essence. The AMERICAN DREAMT must be on, but politicians and decisions makers must also help on this.

One advice for Mr Obama:
Capitalism has not failed, it has been the lack of regulation in the financial markets.

It is very important to keep this clear, because around this point, the US must build their next future generations.

Jose Luis Revilla Escudero
Chairman&CEO
WWShares, Inc
-Global Wealth Management-
www.worldwideshares.blogspot.com