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The official Microsoft press release announcing 2Q09 results and the layoffs is now available:
Microsoft Corp. today announced revenue of $16.63 billion for the second quarter ended Dec. 31, 2008, a 2% increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.94 billion, $4.17 billion and $0.47, declines of 8%, 11% and 6%, respectively, compared with the prior year.
Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks. However, strong annuity licensing drove Server & Tools revenue growth of 15%. Entertainment and Devices revenue grew 3% driven by strong holiday demand for Xbox 360 consoles with a record 6 million units sold in the quarter.
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In light of the further deterioration of global economic conditions, Microsoft announced additional steps to manage costs, including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing. As part of this plan, Microsoft will eliminate up to 5,000 jobs in R&D, marketing, sales, finance, legal, HR, and IT over the next 18 months, including 1,400 jobs today. These initiatives will reduce the company’s annual operating expense run rate by approximately $1.5 billion and reduce fiscal year 2009 capital expenditures by $700 million.
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Due to the volatility of market conditions going forward, Microsoft is no longer able to offer quantitative revenue and EPS guidance for the balance of this fiscal year. Microsoft offers operating expense guidance of approximately $27.4 billion for the full year ending June 30, 2009. This information supercedes the fiscal year 2009 guidance that Microsoft provided on Oct. 23, 2008.
I’ll have to examine the detailed earnings report, but frankly, the results don’t look that bad which makes the layoffs seem disproportionate although this is a certainly a convenient time for some housecleaning. However, revealing only 1,400 of the 5,000 today and deferring the rest for up to 18 months is not the way to enhance employee morale or productivity.
Meanwhile, Microsoft CEO Steve Ballmer tried to reassure employees in a letter:
During the second quarter we started down the right path. As the economy deteriorated, we acted quickly. As a result, we reduced operating expenses during the quarter by $600 million. I appreciate the agility you have shown in enabling us to achieve this result.
Now we need to do more. We must make adjustments to ensure that our investments are tightly aligned with current and future revenue opportunities. The current environment requires that we continue to increase our efficiency.
As part of the process of adjustments, we will eliminate up to 5,000 positions in R&D, marketing, sales, finance, LCA, HR, and IT over the next 18 months, of which 1,400 will occur today. We’ll also open new positions to support key investment areas during this same period of time. Our net headcount in these functions will decline by 2,000 to 3,000 over the next 18 months. In addition, our workforce in support, consulting, operations, billing, manufacturing, and data center operations will continue to change in direct response to customer needs.
I’m sure that the shareholders hope that "key investment areas" does not mean that Microsoft management is robbing the cash cows to prop up the dubious "big bets."
Our leaders all have specific goals to manage costs prudently and thoughtfully. They have the flexibility to adjust the size of their teams so they are appropriately matched to revenue potential, to add headcount where they need to increase investments in order to ensure future success, and to drive efficiency.
To increase efficiency, we’re taking a series of aggressive steps. We’ll cut travel expenditures 20 percent and make significant reductions in spending on vendors and contingent staff. We’ve scaled back Puget Sound campus expansion and reduced marketing budgets. We’ll also reduce costs by eliminating merit increases for FY10 that would have taken effect in September of this calendar year.
No merit increases even for the profitable divisions - that ought to build morale too. We’ll have to wait for all the details to emerge, but at first glance this whole action seems to be rather ham handed. More of Ballmer’s letter by following the link.
The Microsoft layoff rumors of the last few weeks came true today as the company announced 2Q09 results early - Microsoft to slash 5,000 jobs, reports lower-than-expected profit and sales for 2nd quarter:
Microsoft Corp. said Thursday it is cutting 5,000 jobs over the next 18 months, a sign of how badly even the biggest and richest companies are being stung by the recession.
The layoffs appear to be a first for Microsoft, which was founded in 1975, aside from relatively limited staff cuts the software company made after acquiring companies.
The company announced the cuts as it reported an 11 percent drop in second-quarter profit, which fell short of Wall Street’s expectations. Microsoft shares plunged 7 percent in morning trading.
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Microsoft said the job cuts will reduce operating costs by $1.5 billion as it prepares for lower revenue and earnings in the second half of the year. The company says it is unable to offer profit and revenue guidance for the rest of the year, because of the market volatility.
No one expected a great quarterly report, but the lack of guidance will surely spook the market.
Today is January 15, 2009, the rumored date for Microsoft to announce huge layoffs, but that just has not happened. What we do have is a story from the Wall Street Journal that suggests that Microsoft layoffs might be coming next week, albeit not necessarily on the scale previously rumored:
Microsoft Corp. is seriously exploring significant work force reductions that could be announced as early as next week, in a sign that the weak economy is prompting tough decisions even at one of the steadiest ships in the technology industry.
According to people familiar with its plans, the Redmond, Wash., giant is considering layoffs across its various divisions, a rare occurrence for the world’s largest software company. However, plans for the cutbacks are still in flux and Microsoft could end up finding alternative methods of reining in costs, one of these people said.
Not exactly crisp, eh? Microsoft’s earnings report is due next Thursday, January 22, but even then layoffs don’t have to be tied to that announcement. More to the point, while companies find economic hard times to be a convenient excuse for performing overdue headcount reductions, it’s not clear that Microsoft’s business has declined enough to make anything more than selective pruning necessary as a sop to the shareholders.
The New Year’s Day Microsoft buzz is a rumor of a huge 17% layoff at Microsoft on January 15:
The rumor that Microsoft was set to lay off people on January 15th, 2009 is no longer a rumor but a fact. Staff at Microsoft have been informed that the company is readying major layoffs to its worldwide operations and it’s not a small cut, either.
Currently Microsoft employs about 90,000 people across the world and from what we’re hearing, some 15,000 of those are expected to be giving marching orders come January 15th. That’s almost 17 percent of Microsoft’s total work force, not exactly a small number.
Frankly, the number is so large as to be unbelievable given the fact that to all appearances, Microsoft’s business does not seem to be all that bad despite the economic downturn. Could there be some really gloomy news on the way?
At the Mini-Microsoft water cooler (which was the original source of last week’s rumors) there is a new post detailing some comments to the effect that there will not be any layoffs at all. However, the crowd isn’t having any of it and the general theme is that while there may not be across-the-board layoffs, many projects may feel the axe. A sample:
From 12/23/2008, a more likely scenario that feels like a layoff but gives corporate cover:
MS will not do straight layoff. It will re-org, and cut groups/projects. Say 2000 FTE are given 4 weeks to land a new job within MS, I bet 1500 will find nothing and will be forced to leave. So no layoff, let’s call it "reorg-off" and MS can even save layoff package.
In-line with that, from 12/21/2008, bringing up an interesting point about H1Bs:
[T]his company simply could not go through a round of layoff (mind you I did not say a RIF, as we’ve all seen those) but the H1-B rules would force all of the cheap labor to be shown the door first, regardless of ranking. And Microsoft lives for ranking. Microsoft wakes up in the morning and get an enormous boner over rankings. So don’t suggest for a second that there is some dismal, far reaching lay off coming down the river.
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It’s a layoff masked as rhythm-of-business reorganization plus performance management plus Not To Exceed staffing budgets being strictly enforced.
Such a selective pruning is best, of course, but invariably it gets embroiled in a massive amount of corporate politics which is why companies often opt for across the board cuts.
In Microsoft’s case, how would you trade off projects in the cash cows like Windows, Office or Server & Tools versus Steve Ballmer’s "big bet" cash sinkholes in Entertainment & Devices and Online Services? I know how I would do it (good bye E&D!), but more to the point, how would Steve Ballmer trade them off while saving face? Non-optimally, I’m sure.
