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Microsoft To Cut 5000 Jobs


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Wonder why W7 has to come out in 2009?






Jan. 22 (Bloomberg) -- Microsoft Corp. will cut as many as 5,000 jobs, its first companywide firings, and said sales and profit will probably drop as the global recession eats into demand for software. The stock fell the most in three months.


The reductions, about 5 percent of its workforce, will take place in nearly all areas and will help save $1.5 billion, Microsoft said today in a statement. The company will also eliminate merit-based pay raises, cut travel costs and reduce the use of contractors to shore up profits.


Chief Executive Officer Steve Ballmer is under pressure to reduce costs as sales growth dries up in what may be the worst recession since World War II. The company’s Windows division, which accounts for about a quarter of sales, is suffering after personal-computer shipments rose at the slowest rate in six years in the fourth quarter.


“People aren’t buying PCs,” said Kimberly Caughey, senior equity analyst at Fort Pitt Capital Group Inc. in Pittsburgh, which owns 361,685 Microsoft shares. “They’re taking quick action to right-size their company. This is really only 22 days after the close of the quarter, and they must see deteriorating conditions.”


Microsoft, based in Redmond, Washington, fell $1.58, or 8.2 percent, to $17.80 on the Nasdaq Stock Market at 9:57 a.m. New York time and dropped as low as $17.76. The shares lost 45 percent of their value in 2008.


Microsoft also said second-quarter net income fell to $4.17 billion, or 47 cents a share, from $4.71 billion, or 50 cents, a year earlier. Sales were $16.6 billion in the period, which covered the last three months of 2008.


Cutting Costs


Analysts predicted profit of 50 cents a share and sales of $17.1 billion, according to a Bloomberg survey. In October, the company forecast profit of 51 cents to 53 cents a share on sales of $17.3 billion to $17.8 billion.


“Economic activity and IT spend slowed beyond our expectations in the quarter,” Chief Financial Officer Chris Liddell said in the statement. “We acted quickly to reduce our cost structure and mitigate its impact.”


Sales and earnings will almost certainly drop in the fiscal second half compared with a year earlier, Liddell said. The company said it will no longer offer revenue and earnings-per- share forecasts for the rest of its fiscal year ending June 30.


Microsoft said 1,400 jobs will be cut today and the rest of the reduction will be done over the next 18 months. The company will also cut travel spending by 20 percent and will eliminate merit-based increases to salaries for next fiscal year.


Windows Growth Stymied


“While this is the most challenging economic climate we have ever faced, I want to reiterate my confidence in the strength of our competitive position and the soundness of our approach,” Ballmer wrote in an e-mail disclosing the cuts to employees today.


The company needed to reduce costs to allay concern among investors that its expenses were too high given the state of the economy, said Heather Bellini, an analyst at UBS AG in New York. She expected the company to slice 5 percent to 7 percent from an operating expense budget of $27.4 billion by cutting full-time employees and contractors.


Microsoft has about 96,000 employees, an increase of more than 50 percent since June 2005. The company has made jobs cuts in the past, although they were smaller and were limited to a single unit or product.


Growth in the PC Windows unit was stymied by slowing demand for all but the cheapest machines. While consumers and businesses hold off buying computers with the latest premium version of Windows, demand is increasing for netbooks, machines that cost less than $500 and use the cheaper Windows XP or the rival Linux operating system.


Bellini had predicted that sales in the Windows unit fell 2 percent to $4.3 billion last quarter. That compares with Microsoft’s October forecast for growth of as much as 10 percent.


To reduce costs, Microsoft is also delaying parts of a planned campus expansion and letting some building leases expire, spokesman Lou Gellos said this week.





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Here's Balmer's message to employees:

“From: Steve Ballmer

Sent: Thursday, January 22, 2009 6:07 AM

To: Microsoft - All Employees (QBDG)

Subject: Realigning Resources and Reducing Costs


In response to the realities of a deteriorating economy, we’re taking important steps to realign Microsoft’s business. I want to tell you about what we’re doing and why.


Today we announced second quarter revenue of $16.6 billion. This number is an increase of just 2 percent compared with the second quarter of last year and it is approximately $900 million below our earlier expectations.


The fact that we are growing at all during the worst recession in two generations reflects our strong business fundamentals and is a testament to your hard work. Our products provide great value to our customers. Our financial position is solid. We have made long-term investments that continue to pay off.


But it is also clear that we are not immune to the effects of the economy. Consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures.


Our response to this environment must combine a commitment to long-term investments in innovation with prompt action to reduce our costs.


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.


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.


Each of these steps will be difficult. Our priority remains doing right by our customers and our employees. For employees who are directly affected, I know this will be a difficult time for you and I want to assure you that we will provide help and support during this transition. We have established an outplacement center in the Puget Sound region and we’ll provide outplacement services in many other locations to help you find new jobs. Some of you may find jobs internally. For those who don’t, we will also offer severance pay and other benefits.


The decision to eliminate jobs is a very difficult one. Our people are the foundation of everything we have achieved and we place the highest value on the commitment and hard work that you have dedicated to building this company. But we believe these job eliminations are crucial to our ability to adjust the company’s cost structure so that we have the resources to drive future profitable growth. I encourage you to attend tomorrow’s Town Hall at 9am PST in Café 34 or watch the webcast.


While this is the most challenging economic climate we have ever faced, I want to reiterate my confidence in the strength of our competitive position and soundness of our approach.


With these changes in place, I feel confident that we will have the resources we need to continue to invest in long-term computing trends that offer the greatest opportunity to deliver value to our customers and shareholders, benefit to society, and growth for Microsoft.


With our approach to investing for the long term and managing our expenses, I know Microsoft will emerge an even stronger industry leader than it is today.


Thank you for your continued commitment and hard work.



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I think the BBC article could end up closer - it's almost certain that those 5,000 are at Redmond - but this will knock on worldwide and could probably see a reduction in European centres - what's the betting that MS Ireland and MS UK will combine (and probably others throughout Europe and Oceania)

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