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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.
The Microsoft layoff rumors continue. Franklin Paul and Jim Finkle at Reuters – Microsoft expected to cut jobs as profits weaken:
Microsoft Corp is expected to post a quarterly profit that misses its own target and announce thousands of job cuts this week as the global economic slump hurts even the technology industry’s biggest players.
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Checks indicate that Microsoft is likely to engage in headcount reductions to the tune of 6,000 to 8,000 employees or 6 percent to 8 percent of its 95,000 workforce," said McAdams Wright Ragen analyst Sid Parakh. "Our checks also revealed some speculation over the potential for a second round of cuts in some groups sometime later in the year."
Ina Fried at CNET – Microsoft’s internal org chart down amid layoff chatter (spotted at Latest Layoff News):
With rumors of layoffs swirling, some Microsoft workers were dismayed on Wednesday to discover that the company’s online internal organizational chart tool is scheduled to be down until Friday.
Mini-Microsoft – FY09Q2 Results + Town Hall:
Town Hall Friday: lots of rumors flying around, quarterly results Thursday, and then a Town Hall Friday morning. Let’s hope that all spells resolution to the fear, uncertainty, and doubt stirred up to a crescendo as of late. The good-ending scenario is that Steve Ballmer gets out there and finally rips the rumors to shreds and proclaims that Microsoft is a one-of-a-kind juggernaut of a company that is going to be in the position to take advantage of the downturn to re-invest and surge past its competition while they are mired in the mud of the recession.
The not-so-good-ending scenario is that there’s some kind of tough-love re-org truth to all the rumors as the leadership balances out and we get to hear how everything is expected to shake out.
Stay tuned.
Joseph Tartakoff at the Seattle PI has seen an internal presentation describing how Microsoft will be retrenching in Redmond area real estate in view of the economic downturn:
An internal planning and scenario PowerPoint presentation reviewed by the Seattle P-I shows that Microsoft is set to delay the construction of all new buildings in Redmond, except one, for at least three years. The company also will not renew most of its leases when they come up for renewal this year and next.
According to a Microsoft spokesman, some of these leases would not have been renewed in the normal course of events as employees moved to newly leased or constructed space. Also, active construction will not stop and Microsoft will still occupy new office space in Bellevue that they had leased last year.
The changes are driven by the deteriorating global economic situation, which has led to a steep hiring slowdown by Microsoft. It is unclear whether the company will lay off any employees, as has been rumored, this week.
But the presentation shows that in December, Microsoft’s Real Estate and Facilities Team developed a scenario to estimate the company’s real estate needs under the assumption that the company’s work force would not grow for the next 2 1/2 years. Beyond then, the planners expected annual growth of 3 percent.
There are more details in the article including estimated cost savings and recent Seattle area hiring numbers, but it reads to me like an accommodation of a hiring freeze, not provision for any wide scale layoffs – exactly as the above scenario describes.
