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Microsoft Announces Quarter And Job Cuts: It Could Have Been Worse

Posted by: Peter Burrows on January 22, 2009

In its first broad-based job cut, Microsoft will trim its 95,000 person workforce by 5,000 jobs over the next 18 months, starting with 1,400 today. The company also announced quarterly results, which included a 2% increase in revenue, to $16.63 billion and an 11% drop in earnings, to $4.17 billion. The stock is down over 8%, to The company pushed up its earnings call from after the close to $17.78.

The bad news came in Microsoft’s strongest and weakest businesses. The Windows client business fell 8% (both due to falling PC demand, and a mix shift towards cheapo Net books). And the Internet business continues to rack up epic losses—$471 million for the quarter, versus $247 million in the year ago quarter. No word yet on which businesses will see the job cuts, but from the wording of the press release it sounds like it will be across the board.

But all in all, this isn’t the vast cutback that some were expecting. “I think the cuts are mostly symbolic, in that they’ve never done a broad-based headcount reduction before. It shows that they’re serius about the impact the economy is having, and are taking at least initial stgeps to get their business model aligned,” says Technology Business Research analyst Alan Krans. He points out that the bigger savings will come from slowing its headcount growth, which has increased by roughly 9,000, 10,000 and 10,000 the last three years.

Jeffries & Co. analyst Catherine Egbert expected a 5% to 10% headcount cut. Microsoft’s actual cut was around 5.2%. The reason for the big stock decline wasn’t the layoffs, or even the quarterly numbers. Rather, it was the fact that Microsoft said it won’t give any guidance for the next two quarters. “They don’t know where they’re going,” she says.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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