Microsoft to cut up to 5,000 jobs
Posts 11 percent drop in second-quarter profit, short of expectations
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Microsoft to cut up to 5,000 jobs
Jan. 22: CNBC discusses Microsoft’s announcement it will cut up to 5,000 jobs and how that affects the outlook for the technology sector.
Video: Economy in turmoil
Timothy Geithner
AP
Microsoft Corp. said Thursday it is cutting up to 5,000 jobs over the next 18 months, a sign of how badly even the biggest and richest companies are being stung by the recession.
The layoffs, 1,400 of which will come immediately, appear to be a first for Microsoft, which was founded in 1975. Previously, the company has only made relatively limited staff cuts after events such as acquiring companies.
Microsoft's news adds to the growing angst over the job market and could dash hopes that technology companies might lead the country out of the deepest recession in decades. The economy shed about 2.6 million jobs in 2008 and more losses are expected this year.
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Semiconductor maker Intel Corp. said Wednesday it plans to cut up to 6,000 manufacturing jobs as the company struggles with souring personal computer demand that has left its factories operating at less than their full capacity.
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.
“While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach,” said Steve Ballmer, chief executive officer at Microsoft, in a statement.
Microsoft also announced further steps to manage costs, including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing.
The company announced the cuts as it reported an 11 percent drop in second-quarter profit, which fell short of Wall Street's expectations. The company also said it is unable to offer profit and revenue guidance for the rest of the year, because of the market volatility.
The company says profit slipped to $4.17 billion, or 47 cents per share, from year-ago earnings of $4.71 billion, or 50 cents per share.
It says 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 says 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.
“We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year. In this environment, we will focus on outperforming our competitors and addressing our cost structure,” said Chris Liddell, chief financial officer at Microsoft, in a statement.
Investors had been more hopeful about the technology sector following a more upbeat report Wednesday from computer and electronic gadget maker Apple Inc.
Apple reported fiscal first-quarter profit and revenue Wednesday that bested analysts' projections. Looking ahead, Apple said it expects to earn 90 cents to $1 per share on $7.6 billion to $8 billion in sales in the current quarter, which ends in March. That's lower than what analysts had been looking for — $1.13 per share of profit on $8.2 billion in revenue — but Apple is known for issuing guidance that falls well below Street estimates.
The Associated Press contributed to this report.
