Microsoft CFO Outlines Plan to Weather Economic Crisis
Microsoft fears that PC spending may be lower, which would negatively affect its Windows desktop business.
Fri, October 24, 2008
Computerworld — Microsoft's chief financial officer outlined a three-part plan the company will undertake to weather the current economic crisis, which spurred Microsoft to lower its revenue and earnings expectations for fiscal 2009 on Thursday.
Microsoft will focus on lowering customers' total cost of ownership, tighten its own spending to encourage operational efficiency, and choose its investments carefully in the near term as the U.S. and global economic outlook continues to be volatile, Microsoft CFO Chris Liddell said on a conference call Thursday.
"There's a high degree of uncertainty in outlook based on the state of the economy," Liddell said. "We can't control the economy, but we can control our overall performance in regard to [it]."
As part of its fiscal 2009 first-quarter financial announcement, Microsoft on Thursday lowered its financial outlook for both second-quarter and full-year 2009 results. The company fears that PC spending may be lower than expected, which would negatively affect its Windows client business. Along with its Business Division, which includes Microsoft Office, the company derives the bulk of its revenue from its client business.
New guidance for the second quarter, which ends Dec. 31, is in the range of $17.3 billion to $17.8 billion for revenue and $0.51 to $0.53 for diluted EPS. Previously, the company said it expected about $18 billion in revenue with EPS of $0.55 for the second quarter. For the fiscal year, revenue is now expected to be in the range of $64.9 billion to $66.4 billion, with EPS in the range of $2 to $2.10. Previously, Microsoft had expected revenue in the range of $66.59 billion to $67.1 billion, and EPS to be between $2.11 and $2.18.
To lure and retain customers who are looking "to do more with less" in the challenging economy, Liddell said Microsoft will focus on providing "high-value products at a low total ownership cost as a competitive advantage." He cited products such as its Hyper-V virtualization software for Windows Server and its unified communications software as ways companies can use IT infrastructure to reduce business costs.
As part of its own plan to manage its expenses, Microsoft will decrease its spending $a500 million for the remainder of its 2009 fiscal year, which ends June 30, he said. The company also will lower headcount costs by revising hiring strategies and cutting employee costs such as travel expenses, Liddell said.
Microsoft also plans to lower its marketing expenses to keep the company running efficiently, he said. In this area, the company recently spent $300 million on a marketing and advertising campaign for Windows Vista, which already has been spoofed by competitor Apple in television ads.
Microsoft also will invest only in "key opportunities" for growth as the economic climate remains uncertain, he said. Liddell did not address the possibility of Microsoft making another bid for Yahoo, although recently CEO Steve Ballmer said publicly that a deal between the two companies would still make sense economically.