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January 22, 2009

Microsoft layoff press release and Ballmer’s letter to the troops

Posted by David Hunter at 10:57 AM ET.

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.

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.

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.

Filed under Executives, Financial, General Business, Investor Relations, Layoffs, Microsoft, Steve Ballmer

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2 Responses to “Microsoft layoff press release and Ballmer’s letter to the troops”

  1. Microsoft layoffs: The second shoe drops | Microsoft News Tracker Says:

    [...] January, when Microsoft announced their first company wide layoffs, they actually only laid off 1,400 of a stated potential 5,000 within 18 months. Today the [...]

  2. 800 more layoffs at Microsoft | Microsoft News Tracker Says:

    [...] counting is bit vague, but a Microsoft spokesman said that the company had already let go most of the 5,000 employees promised in January so today’s 800 layoffs were new and additional. On the other hand. if you like to try to read [...]

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