Largest Layoff in Microsoft History Raises Questions

1/22/09Follow @gthuang

Here are a few thoughts after listening to the Microsoft earnings conference call. The software giant announced 1,400 layoffs today, with up to 5,000 positions being eliminated over the next 18 months, mostly at its Redmond, WA headquarters. (The company’s New England operations will not be directly affected, according to a Microsoft spokesperson we contacted; see below.) In addition, there will be no pay raises in the next fiscal year. And marketing and facility costs and travel expenses will be cut. All of that will save the company some $1.5 billion in operating expenses.

1. Is it enough?

Granted, it is the largest layoff in Microsoft’s history—and the 5,000 positions doesn’t include outside contractors and the like. But chief executive Steve Ballmer said on the call that “we’ll be adding a couple thousand jobs back, in areas like search.” So the job loss will amount to “more like a net two to three thousand.” As bad as it is, it’s a lot less than what many people were expecting; there were persistent rumors of 10,000 or more getting the axe.

2. Will there be more layoffs?

The worry here is that Microsoft might enact a series of increasingly demoralizing cutbacks if the economy doesn’t turn around in the next year or so. So what exactly is Microsoft basing its cutbacks on, and what are its assumptions about the downturn? “The size and scope of this economic dislocation is unprecedented,” said Ballmer. “Our model is not for a quick rebound. The economy shrinks and rebuilds from a lower base. We’re not expecting a bounce…It will stay down for a year, two years, then start to build back.” It sounds like Microsoft has planned for the next 18 months, but if things get a lot worse, there will be further cutbacks.

3. How will Microsoft retain and attract top talent?

Not giving pay raises is tough on hard-working employees and prospective employees. It’s the kind of thing that could lead to an exodus of top talent from Microsoft—and the Puget Sound region in general. On the other hand, there are fewer positions for departing employees to go to now. Xconomy will be watching closely what the effect of all this is on the Seattle area.

On the New England front, Xconomy was in touch this morning with Catherine Collins, Microsoft’s east region public relations manager. She said most of the cuts announced today will be in Redmond, and that Microsoft’s research and development center in Cambridge, MA, will not be affected—at least not right away.

Collins’s full statement: “We expect that the global economic environment will continue to be challenging and we will continue to evaluate our business to ensure that our investments are aligned to current and future revenue opportunities. We continue to believe in the strength of the company, our ability to continue delivering value to customers and our approach to long-term growth. The majority of today’s job eliminations are in Redmond, consistent with the high concentration of employees based at our headquarters in the Seattle area. Microsoft in Massachusetts is not directly impacted by the immediate job eliminations announced by the Company today.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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