Microsoft to log off 5,000 staff

For the first time ever, technology giant Microsoft is embarking on a company-wide round of job cuts...

Last Updated: 31 Aug 2010

Microsoft said on Thursday that it would shed 5,000 jobs worldwide in the next 18 months, after falling sales in its core PC market hammered profits. The cuts, which amount to about 5% of its entire workforce, will start immediately; 1,400 staff have been made redundant today, including a reported 60 or so in the UK. The technology giant made the decision after its quarterly profits came in below forecasts: net income was down 11% on the same period last year, sending its shares plunging 10% today. Microsoft has been a money-making machine for a long time – so today’s news will make a lot of people very nervous…

It’s clearly been a tough few months for Microsoft, which blamed the fall in profits on ‘PC market weakness and a continued shift to lower priced netbooks’. In other words, it’s seeing reduced demand for the expensive computers that carry its software, as customers increasingly opt for low-cost laptops that operate mostly online. This is a worrying sign for Microsoft, because it’s not just a symptom of the economic downturn: more and more users are going down the lower-cost ‘software as services’ route, and that clearly represents a major strategic threat. Although it clearly won’t help that the recession is reducing IT spend across the board.

Indeed, Microsoft reckons the market is so volatile at the moment that it’s now refusing to put a figure on full-year profits. However, it is definitely expecting both sales and profits to fall in the second half, which is why CEO Steve Ballmer has launched a big cost-cutting drive. As well as the first-ever company-wide redundancy round (previous cuts have only been as part of reorganisation or integration efforts, apparently), which will inevitably affect its UK base in Thames Valley, he’s also slashing budgets for resourcing, facilities, investment and marketing. He hopes that this will boost Microsoft’s bottom line to the tune of about $1.5bn.

What he won’t be doing, apparently, is changing tack: ‘I am confident in the strength of our product portfolio and soundness of our approach,’ Ballmer said today. Now, it’s true that many companies would kill for Microsoft’s problems (it still finished the quarter over $4bn in the black, and has a market cap of about $160bn even after today's falls). But Ballmer’s critics argue that Microsoft’s model is in serious danger of becoming outdated – and today’s news will do nothing to dissuade them (particularly after Apple's relatively good results yesterday). Maybe Bill Gates got out of the firing line at just the right time...

In today's bulletin:

Recession is official - and it's worse than we thought
Editor's blog: The Paris Hilton stimulus plan
Microsoft to log off 5,000 staff
MT's Week in 60 Seconds
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