by Shane O'Neill

Microsoft Layoffs, Earnings Woes: They Can’t ‘Windows’ Their Way Out of This

Jan 23, 20094 mins
Data Center

The build-up and rumors about Microsoft’s layoffs had been going on for a month, but it still felt like a shock when the news became official yesterday.

By late morning eastern time, the first-ever company-wide round of layoffs had been announced, along with weak sales and earnings for the December quarter.

It’s sad but true: 1,400 Microsoft employees laid off immediately and up to 3,600 more in the next 18 months. What a downer. My thoughts go out to all Microsofties who lost or will lose their jobs. However, it’s worth putting this in perspective: Microsoft has 90,000+ employees.

(Click here to read CEO Steve Ballmer’s memo to employees about the layoffs and other cost cuts.)

Microsoft revenue for the quarter was $16.6 billion, an increase of 2 percent year over year. Net income, on the other hand, went down 11 percent. The Windows group saw an 8 percent drop in quarterly sales and continues to get hammered by the rise of lower-priced netbooks, most of which run Windows XP but do not bring in much money.

The software giant will no doubt carry on in these dark times, a tad thinner around the waist and hopefully more willing to step outside the Windows/Office comfort zone. Microsoft is at a serious crossroads where it needs to aggressively pursue new areas of innovation such as mobile computing, Web-based applications and search if it wants to survive. It’s probably time for yet another sit down with Yahoo about a search deal.

(Click here to read my colleague C.G. Lynch’s blog post “Five Changes Microsoft Must Do — Or Die”.)

Microsoft is not unlike President Obama in that it needs to quickly implement a fresh new strategy to fix a broken system, all while keeping dwindling employee morale from dropping through the bottom.

The pressure is on, yet from what I’ve read in blogs and heard from analysts, Microsoft has no cohesive strategy in place other than “prioritizing, and focusing on the most important stuff,” to quote CEO Steve Ballmer.

In a conference call with the press late on Thursday, Directions on Microsoft analyst Matt Rosoff could only speculate about Microsoft’s roadmap. “Microsoft said it is not cutting any product groups and remains committed to search,” Rosoff says. “It’s realizing that new versions of Windows are not going to drive PC upgrades and that it must drive other business segments such as search and mobile.”

Rosoff added that “some sort of business deal with Yahoo is more of a possibility” now that Microsoft’s back is against the wall.

Yet the software giant does seem unnervingly foggy about its future. As part of its earnings announcement, Microsoft said it will offer no forward guidance for the remainder of fiscal 2009 “due to the volatility of market conditions going forward,” to quote the press release. What I get from that is Microsoft doesn’t know what’s wrong with the company. Not very reassuring.

Microsoft shares fell nearly 12 percent on Thursday after the announcement and closed at $17.58, its lowest level since Jan. 1998, according to MarketWatch.

We are in the worst economy in 70 years—something Steve Ballmer never fails to mention seemingly every time he speaks. But how long can Microsoft play the recession card? I’m sorry, but after awhile it starts to sound like an excuse. During that very same recession—in fact, two days ago—Apple announced it set a single-quarter revenue record.

I suppose it could have been worse. Many of the predictions from the past few weeks were saying that 15,000 Microsoft employees would be laid off.

Microsoft will likely pull out of this quagmire, but it will need to overhaul its image and create a business plan that will get them market share gains in more emerging markets. In other words, it can’t “Windows” its way out of this predicament even if the upcoming Windows 7 delivers world peace on a silver platter (okay maybe that would work).

Jan. 22, 2009 was indeed a grim day, and will either be remembered as a day of new beginnings for Microsoft—or the beginning of the end.