Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fall short

Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fall short

Summary: Microsoft said Thursday that it will cut 5,000 jobs across multiple areas like research and development and marketing over the next 18 months with 1,800 layoffs immediately. Meanwhile, Microsoft's earnings fell short of expectations.

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Microsoft said Thursday that it will cut 5,000 jobs across multiple areas like research and development and marketing over the next 18 months with 1,800 layoffs immediately. Meanwhile, Microsoft's earnings fell short of expectations.

As for Microsoft's second quarter earnings, the company reported net income of $4.17 billion, or 47 cents a share, on revenue of $16.63 billion, up only 2 percent from a year ago. Wall Street was expecting earnings of 49 cents a share.

Microsoft pulled its financial outlook due to "to the volatility of market conditions going forward." In a statement, CEO Steve Ballmer said:

"While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach."

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What went wrong?

Mostly Windows (Microsoft breakdown). Client revenue--the Windows juggernaut--fell 8 percent because of weak PC demand and "a continued shift to lower priced netbooks."

msft31.png

Server and tools revenue did gain 15 percent, but the rest of the units delivered flattish results. The big takeaway here is that the Windows engine is sputtering and the race to netbooks, which use XP, is hurting margins. Here's the breakdown by business unit (click to enlarge).

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Given that Microsoft can't bet on any significant improvement, the company said it is shaving $1.5 billion in expenses and cutting capital spending by $700 million. The bulk of those expenses were the layoffs.

CFO Liddell said "economic activity and IT spend slowed beyond our expectations in the quarter."

Topics: Banking, Microsoft, IT Employment

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27 comments
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  • M$ ship is sinking

    While FOSS is thriving.That is a brave new world.
    Linux Geek
    • What planet you on?

      Microsoft employed 89,809 workers worldwide, as of May 31, 2008. If they laid off 5,000 workers per year, it would take almsot EIGHTEEN YEARS before there was nobody left.

      Why do these Linux trolls keep predicting the eminent death of Microsoft when simple economics and facts show otherwise?

      Of course, when all the FOSS folks huddle together and sing kum-ba-ya around the campfire, I suppose economics has little meaning.
      Marty R. Milette
      • Doooown, dooown, down.........

        http://uk.finance.yahoo.com/q?s=msft

        Is there a bottomless pit?

        If so, Microsoft is bound to find it!
        Ole Man
      • It's called reality!

        Empires rise and fall and have done for thousands of years. Microsoft is not immune, and their business model is flawed by their insistence on not putting enough effort into developing good products at the right prices. Vista is a typical example. I bought a laptop 18 months ago that came bundled with Vista. 3 times in one year I had to restore to the original build from the restore partition because the OS had got in a god awful mess just from daily use. So the last time it needed a rebuild I looked at going back to XP. Only problem was I found that there is virtually little or no support driver-wise for this laptop on XP. It was apparently built specifically for Vista. So I tried the latest version of Ubuntu. It installed without any issues and correctly discovered and configured all the devices except the fingerprint reader. No great loss there. The important thing is that I?ve been able to use it without any issues for nearly six months now and have only had to install one Windows based piece of software via Wine. I haven?t had to tinker with the Ubuntu OS at all, it just runs beautifully. If Vista had delivered on its promises I would never have discovered just how good the latest versions of Linux are. From experience I can tell you that Microsoft have a huge gap to cross before they?ll get my custom back, and I?m amongst a growing number of people who are getting more and more dissatisfied with poor quality software at inflated prices from MS. Unless MS do something drastic they are doomed to fail just like so many empires before them.
        GOTBO
  • A Quibble

    You said the race to netbooks [which use XP] is hurting
    margins. This point doesn't make sense to me.

    To briefly explain, a margin is a ratio of profit to cost of
    sales. I suspect that among its operating systems, the one
    with the best margin is XP. At this point the margin should
    be nigh on 100%. Alternatively, if all Windows client
    licenses share current direct costs, then the margins on XP
    are the same as the margins on Vista.

    If netbooks are having an impact, as Microsoft says, it's
    because the revenues from OEM XP-netbook licenses have
    not offset the decline in revenues from OEM licenses in the
    laptop and desktop markets. I suspect the per-unit cost
    for XP on netbooks is less than the per-unit cost for Vista
    on laptops/desktops. Some netbooks do not use Windows.

    I think, though, it is an open question as to whether
    netbooks represent a new market segment or are truly
    taking sales away from laptops and desktops.
    DannyO_0x98
  • RE: Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fall short

    Let us not forget that a number of those netbooks are running Linux not just Xp. We are fast becoming a web dependent society where all you need is a browser... and Browsers run quite well on Linux...
    jrr2
  • I'm waiting to see when the cost of Windows will come down

    out of the stratosphere. Of course, Microsoft will blame the economy. When that happens, keep in mind that there's a big difference between "the pond has dried up" (economic woes) and "we're sinking while everyone else is still paddling around" (bad management).
    softwareFlunky
    • I wouldn't want Windows if MS paid *me* ...

      What difference does it make? If Windows was *free* would you want it? I wouldn't.

      I only use it for several limited reasons... my work VPN, my Xerox scanner, and--until I get more proficient with Linux networking in my household--for sharing printers. Vista has broken my file and folder sharing on my Windows network.
      bbneo
  • RE: Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fa

    I think M$ should be sinking to reach the same level of its competitors, we should start seeing a real price sink of all those overpriced software.
    jmhalloy
  • Boils down to Qty * Cost...

    Microsoft has for years been known for selling over-priced software, but for the masses, it didn't really matter because you needed it. Now there's other options coming down the pike for PC's, Open Office Suites, Linux OS with a better look and ease of use for the end user (Ubuntu), and other browsers that work quite nicely.

    If Micrsoft would lower prices to a more realistic price, people would be more apt to go and purchase it, rather than try to pirate or use another choice. They should rely on Quantity of sales, not the cost of sales. If they sold a million copies of Windows 7 at 250.00 each, that 250 million dollars, but if they priced it at 100.00 each, and 10 million copies... well you do the math! People are no longer forced to buy Microsoft products anymore and with the economy as it is, MS has to do something else to make their products more luring to the general public... and the best way to do that (we've seen in the past) is with the all mighty dollar!
    dmacnevin
  • Microsoft: helps to sink the ship

    4.1 billion in quarterly profits and they can't afford to keep 5,000 people employed? They and the rest of the profitable companies that are laying off people to protect their short-term quarterly goals (and their over the top salaries) are only sinking the economy deeper into recession.
    They should be making pledges to keep people employed, to give them and the rest of us some sliver of confidence. Unemployed people can't buy anything, including PC.s TV's cars and other consumer goods.
    Employed people can help a company reposition itself for when the recession ends, to create new products, refine old ones (and boy does MS need refining!).
    gorgo54
    • Ignore the facts.

      Microsoft employed 89,809 workers worldwide, as of May 31, 2008. That's a far sight more than 99.99% of companies in the world today.

      I wouldn't bitch too much.
      Marty R. Milette
  • RE: Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fall short

    Gee, stop forcing changes without an option to drop back to "Classic" functions and maybe MS would sell more units.

    Many of us do not want ribbons.

    Build two flavors of the client OS -- Home Deluxe 64-bit and Enterprise Deluxe-64, both with near-100% backward-compatibility virtualization to DOS 7 and 16-bit code.

    Oh, and stop trying to buy Yahoo.

    JJB
    JJ Brannon
  • RE: Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fa

    his presentations look so dreary compared to say...APPLE's. LOL

    Oh well, it had to happen. Now, what they really need to do is
    restructure internal executive pay structures and take that
    money and pay to keep these other people employed.

    That should be easy with just Ballmer's compensation package.

    Come on Steve, you're a big boy now, give up some of the
    burgers and foot the bill for all of those people to keep their
    jobs!

    Michael Murdock, CEO
    ceo8
    • Surely you jest!

      Microsoft? Expose even a glimpse of generosity? Not to mention morality!
      Ole Man
  • RE: Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fall short

    With most users looking for alternatives that will ease cost of ownership this is not that big of a suprise. What I see is a resurgence of demand for XP on Netbooks as it offers small size, compatablitity and familiarity with OS. On a similar note I have seen an increase in demand on Linux based computers as an alternative to both Vista and Microsoft. In my shop (computer consultant and system provider) we have seen growth in sales of SuSE 11, Ubuntu 8.04 and Fedora based computers over a drop in sales of Vista based computers.

    More people are feeling the pinch now, and an alternative to expensive software is becoming more and more welcome.
    CBHedricks
  • We, the computer professional and other professions too...

    We need to take the industry, and all industries away from the money shufflers and have them run by people who actually know about modern products, production and customer needs. Has for me, my boss saw fit to stay with 50's way of running a business while waiting today's bonus structure for himself. I myself get to sit at home, till I get a truck driving job.
    jneilson
  • RE: Microsoft: 'We are not immune' to economy; Cuts 5,000 jobs; Earnings fa

    I'm sad for the employees but I can't hide my
    Schadenfreude concerning the misery of low quality
    software we are all subjected to. Every day I lose time
    because my Windows and Vista computers in the office
    take so long to start up and so many times they crash. In
    20 years Miscrosoft has not managed to get a DOS
    operating system that is beyond beta level. The only thing
    Microsoft got right is building a monopoly for it's shoddy
    disk operations systems. There are 2 things I ask a DOS to
    be perfect at: 1) access data on disk/storage 2) find data
    rapidly. MS fails at both. Consistently. Since about 20
    years, since DOS 3.2 the last stable version.... Fortunately
    at home I have Macs and don't have to work on computers
    with Windows/Vista-impediments as I do in the office.....
    I hope the fired employees will find jobs in companies
    making reliable products that are beneficial to users AND
    stockholders... sorry guys...

    Vivifiant, Ohio
    Vivifiant
  • Microsoft is passing up opportunities for revenue

    It's a shame that Microsoft is so narrow minded that they are leaving revenue opportunities on the table rather than admit that Windows isn't the end-all and be-all of operating systems.

    If they ported Office and their other productivity tools to Linux, they would be able to get their foot in the door for gaining revenue from the Linux based netbooks that are starting to take off, as well as being able to head off Open Office in those environments that require software that runs on all OSs, not just Windows.

    For that matter, if they ported .NET and their development tools to Linux, they could sweep the server world.

    Vista is a performance hog compared to XP, and Windows 7 is no better. Both are bogged down with DRP and full of security vulnerabilities.

    If Microsoft was willing to allow Windows to compete on its own merits instead of locking people in with their productivity and development tools, they could increase their revenues from these other divisions despite the difficult times that we are in.
    sylerner
    • wrong on all counts

      1) linux desktop is only significant in the minds of tech blog loons... over here in reality it is a non starter because the OSS world wears complexity like a badge of honor

      2) commercial software doesnt work on Linux from a biz standpoint. The community hates it and is hostile to it and is hell bent on some social experiment rather than commercial viability. With precious few exceptions and only in either very niche or very high end areas, commercial software on OSS platforms is a waste of time. MSFT looks at 100M+ unit scale, despite being "down for the count" according to the basement dwelling know nothing geniuses who opine here as if they actually have clue

      3) .NET IS available on Linux and its called Mono and has been around a while and is now officially supported by Novell and legit. Odd that your big prediction of the HUGE things that would come of that didnt seem to pan out, but Im sure youll have plenty of reasons other than maybe you dont have it all figured out

      General newsflash for the idiots... This isnt about "M$FT IS GOING DOOOOWN!!!! NIX R000LZ MAN!!!!", this is about a collapsing global economy. SOme of you may want to notice that and plan for it before the power takes out your NIX GRID D00D!

      My customers arent spending on ANYTHING and that includes MSFT as well as UNIX and Linux. Spend is flat at best. You think this is somehow a victory? What matters the most I wonder? "Winning" some non-existant war that exists in your head, or being employed?

      Id bet that Microsoft and Apple can ride out a bad storm a bit longer than the OSS vendors. Because, sorry to burst the delusion bubble, but large enterprises arent going to rely on "the community" for support (communism and business dont mix well) and they dont want to run out and hire lots of $150k+ "NIX Lr0Ds!" to fatten up their payroll and support it themselves.

      Its funny how some are SO friggin deranged and SO detached from reality they take even recessionary layoff news as a sign of progress in the great holy war...
      mlambert8909