Following up on the Microsoft layoff news today, this entry is from my colleague John Fontana:
Microsoft, once seemingly immune from economic turmoil, is undertaking an historic resetting of its business starting with staff and cost reductions as it hunkers down to weather a downturn CEO Steve Ballmer predicts won’t come with a quick rebound.
To emphasize the point, the company Monday cut 1,400 employees and said the number of lay offs could go as high as 5,000 over the next 18 months. Microsoft also is freezing pay raises for the next fiscal year.
It was the first time in its history that Microsoft had made wholesale cuts across the company. Microsoft also said it would cut a chunk out of its pool of outside consulting contractors that could go as high as 15% more than the internal staff cuts.
The layoffs came as a surprise to many inside Microsoft even though predictions from analysts and press have been flying for the past month.
Microsoft did not provide such dire predictions during its fiscal first quarter earnings report in October other than to say it would adjust downward its guidance for financial analysts.
But infamous internal blogger Mini-Microsoft wrote on his blog Monday: “Don’t go asking your manager many questions today: this is news to 99% of us.”
But make no mistake, the company with more than $23 billion in cash is resetting and not reeling. In fact, the company in the second quarter grew 2% over the same quarter last year.
“They are not on the ropes,” said independent consultant Dwight Davis, who has followed Microsoft for more than 15 years. “Microsoft is a very diversified company in terms of geography and products and markets, including consumer, small and medium sized businesses, and the enterprise. This is a worldwide economic problem and Microsoft is exposed on about every front.”
And Davis said Microsoft has to keep dumping financial resources into businesses where it is losing badly, including online search and advertising.
Davis said one change for Microsoft could be a measured retreat from its strong spending on research and development and more of a focus on mergers and acquisitions to provide technology it needs to compete.
In 2008, the company spent more than $8 billion on R&D.
“They might feel they can acquire more people and technology more efficiently by acquiring companies,” said Davis. “With the economy you see a lot of cheap property on the market.”
We have lots more coverage of this event:
Most notable IT layoffs
Microsoft to cut 5,000 as income falls
Microsoft’s layoffs and cost cutting won’t be enough to secure its future. It needs to stop squandering on R&D, shareholder activist says.
Report: Microsoft to rein in real estate expansion
