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Microsoft to slash 5,000 jobs, misses on Q2 profit

Thu, 01/22/2009 - 7:20am
The Associated Press

SEATTLE (AP) – Microsoft Corp. said Thursday it is cutting 5,000 jobs over the next 18 months – more than 5 percent of its workforce – 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 8 percent in morning trading.

Microsoft said it was being hurt by deteriorating global economic conditions and lower revenue from software for PCs. The holiday quarter of 2008 was the worst the PC market had seen since 2002, with computer shipments declining about a half of 1 percent, according to IDC, a technology research group.

Making matters worse, the one type of PC consumers have warmed to in tight times – the low-cost, low-power "netbook" – actually cut further into Microsoft's earnings, the company said. The tiny portable computers run on Windows XP, which is older and less profitable for Microsoft than Windows Vista.

In a memo to employees released Thursday, Chief Executive Steve Ballmer acknowledged that Microsoft is "not immune to the effects of the economy. Consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures."

Ballmer said Microsoft cut operating expenses by $600 million in the quarter, but that it wasn't enough.

The layoffs, starting with 1,400 on Thursday, will affect workers in research and development, marketing, sales, finance, legal and corporate affairs, human resources and information technology. Ballmer also said changes would occur in departments that handle support, consulting, operations, billing, manufacturing and data center operations, but he did not say whether layoffs are planned.

Microsoft won't stop hiring entirely. Ballmer said the company will add new jobs to support "key investment areas" over the next 18 months, so the total number of employees will drop by only 2,000 to 3,000. Microsoft employs 94,000 people overall.

The software maker is also making cuts to travel costs, contractors and vendors and has scaled back a massive expansion to its Redmond, Wash., headquarters.

Microsoft said profit fell to $4.17 billion, or 47 cents per share, from year-ago earnings of $4.71 billion, or 50 cents per share.

Total revenue edged up 2 percent to $16.63 billion, as software for corporate computer servers helped offset an 8 percent drop in revenue for PC software.

The results missed Wall Street's forecast for earnings of 49 cents per share on sales of $17.08 billion.

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.

Its shares fell $1.57, or 8.1 percent, to $17.81 in morning trading.

AP Business Writer Andrew Vanacore in New York contributed to this report

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