M$ Lay’s off 5K Employees… Blames sagging PC sales *cough*

Decline in PC Orders Leads to Microsoft Layoffs

By ASHLEE VANCE

M$

MOUNTAIN VIEW, Calif. — Spooked by a rapid decline in orders for personal computers, Microsoft, the world’s largest software company, initiated the first broad layoffs in the company’s history on Thursday and warned of waning technology spending in the months and even years to come.

Microsoft, based in Redmond, Wash., plans to lay off 5,000 of its 94,000 employees over the next 18 months, including 1,400 people on Thursday. The company disclosed the cuts as it released second-quarter results, which reflected an 11 percent drop in net income, to $4.17 billion, from $4.71 billion in the period a year ago. A sharp drop in sales of its Windows operating system that took hold in December led to the lackluster results, which missed analysts’ expectations.

Revenue for the quarter rose 2 percent, to $16.63 billion. Earnings of 47 cents in the quarter missed the forecast from Thomson Reuters by 2 cents.

“We are certainly in the midst of a once-in-a-lifetime set of economic conditions,” Microsoft’s chief executive, Steven A. Ballmer, said during a conference call. “The economy is resetting to a lower level of business and consumer spending.”

Microsoft’s shares dropped $2.27, or close to 11.7 percent, to $17.11 during Thursday’s trading.

The falling sales of PC software dovetailed with broader problems across the computer industry. Earlier this week, Intel, the world’s largest chip maker, said it would lay off at least 5,000 people and close some test and manufacturing plants to deal with vanishing demand for its products. The hard-drive maker Seagate and the chip makers Advanced Micro Devices and Nvidia have watched sales dry up as well, while also going through layoffs. And Sony, the electronics equipment maker, will also lay off about 5,000.

Microsoft has survived past downturns because of its dominant position, high margins and near relentless growth in the PC industry, but it is now bracing for a different set of circumstances.

“Our model is not for a quick rebound,” Mr. Ballmer said, during the call. “Our basic view is that things go down and stay down for awhile — a year or two years, I don’t know what it will be — and then start building back again.”

The layoffs will affect workers in several Microsoft businesses, and the company is considering the dismissal of more than 5,000 contractors. Still, Microsoft intends to hire in some parts of its business.

“Even as we take out 5,000 jobs, we will also add a few thousand jobs back into areas like search where we continue to see incredible opportunity to do good work,” Mr. Ballmer said.

Some analysts questioned whether Microsoft took quick enough and broad enough actions to deal with such a severe decline in technology spending. In addition, Wall Street continued to push Microsoft to address its trailing position in the search market dominated by Google. The company remains open to a search partnership with Yahoo, Mr. Ballmer said.

The direct impact of falling personal computer sales were evident in Microsoft’s second-quarter results, as sales of its PC operating-system software dove 8 percent, to $3.98 billion, from $4.33 billion last year.

A recent survey conducted by the research firm Forrester revealed that half of the consumers in the United States who intended to buy new PCs would put off their purchases, and many of those that did buy new machines intended to spend less.

In addition to falling PC sales, Microsoft blamed the rise of netbooks — increasingly popular cheap, compact laptops — for flagging Windows operating system revenue. Microsoft offers the lower-priced Windows XP rather than Vista for use on netbooks.

There were a couple of bright spots for Microsoft in the second quarter, including a 3 percent rise in its entertainment business, which includes the Xbox gaming console. Microsoft sold a record six million Xbox systems during the quarter, which included the holiday shopping season.

Microsoft also remained bullish about its business software group, although it noted that layoffs and lower capital spending could hurt its long-term sales.

Over the next year, Microsoft said it intended to keep trying to cut costs and would keep a tighter hold on its cash. The company looks to moderate its share repurchase program. In addition, it will remain more tentative toward acquisitions, in the belief that valuations of potential targets will be lowered even further in the months to come.

“I don’t think the market has yet to lower its expectations to the levels we are talking about,” Christopher P. Liddell, the company’s chief financial officer, said during the call.

Blaming economic uncertainty, Microsoft declined to provide a revenue or earnings forecast for the coming quarter or year.

Still, Mr. Ballmer tried to issue an optimistic long-term view for the technology industry.

“I don’t think there is any stopping the forward march of this industry or of Microsoft,” Mr. Ballmer said. “It is a pause, and there will be renewed strong growth in the technology industry over all and certainly at Microsoft.”

Ok, one thing I don’t really see mentioned here is how much of the market is now being taken by OpenSource like Ubuntu as well as what is taken by Mac OSX. Sure, the economy sucks and netbooks are the rage, but is that really it? I personally think it’s because people finally have a viable choice in operating systems other than Microflaccid. M$ is just finally realizing that they are a dead carcas that has begun to decompose.

Or perhaps they should also take a look at their price models and how they treat their customers?

Or maybe we should just say the word “hubris”
Yeah, that’s it… Hubris.

I am sure they will still be around though, putting out more security lacking, multi patching, blue screening, crap.