Microsoft has announced that it will axe 5,000 jobs, or 5 percent of its workforce, after posting revenue of $16.63 billion, or $0.47 per share. It also announced that it will cease giving forecasts for its earnings for the rest of the year due to the current economic climate.
People in research & development, marketing, sales, finance, legal, human resources and IT will be axed; though it is not known which group got the most cuts. Out of the 5,000 jobs that will be axed – 1,400 will be axed today. The job cuts are said to reduce its operating expenses to approximately $1.5 billion.
While revenue were up from $16.4 billion a year ago; Microsoft has said that its earnings fell to $4.17 billion, or 47 cents a share; from earnings over a year ago of $4.71 billion, or 50 cents a share – a 2 percent increase.
“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,” chief executive Steve Ballmer said in a statement.
“We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than we are today.”
In its earnings report, its sales for its consumer operating systems (like Vista) declined by 8 percent because of the result of the reducing PC market and the shift to netbooks, lower priced notebooks; but its Server & Tools and Entertainment & Devices division grew in revenue, 15 percent and 3 percent respectively.
Also the other divisions that grew in revenue were the Online Services Business, which includes Windows Live, and its Business Division. However, the Online Services Business underperform to meet expectations of $923 million, according to CNBC; only making $866 million.
But it’s not the only division that underperform to meet expectations; as only the Servers & Tools division managed to outperform.
It has also said that it will not bring out any of its forecasts for its earnings for the rest of the year, saying in the statement:
Due to the volatility of market conditions going forward, Microsoft is no longer able to offer quantitative revenue and EPS guidance for the balance of this fiscal year. Microsoft offers operating expense guidance of approximately $27.4 billion for the full year ending June 30, 2009.
Microsoft will also embark on aggressive steps to cut costs during the economic crisis; including making significant reductions “in spending on vendors and contingent staff”. In an internal e-mail to Microsoft employees, Steve Ballmer wrote:
To increase efficiency, we’re taking a series of aggressive steps. We’ll cut travel expenditures 20 percent and make significant reductions in spending on vendors and contingent staff. We’ve scaled back Puget Sound campus expansion and reduced marketing budgets. We’ll also reduce costs by eliminating merit increases for FY10 that would have taken effect in September of this calendar year.
Each of these steps will be difficult. Our priority remains doing right by our customers and our employees. For employees who are directly affected, I know this will be a difficult time for you and I want to assure you that we will provide help and support during this transition. We have established an outplacement center in the Puget Sound region and we’ll provide outplacement services in many other locations to help you find new jobs. Some of you may find jobs internally. For those who don’t, we will also offer severance pay and other benefits.
The decision to eliminate jobs is a very difficult one. Our people are the foundation of everything we have achieved and we place the highest value on the commitment and hard work that you have dedicated to building this company. But we believe these job eliminations are crucial to our ability to adjust the company’s cost structure so that we have the resources to drive future profitable growth
Microsoft’s shares on the NASDAQ fell to 17.11, or an 11.71 percent drop, from yesterday. However, in after-hours trading, it managed to pick up 0.7 percent, and currently is trading at 17.23.
[1:41 PM AEDT] Edited Title to reflect on story changes.