Microsoft announces 5,000 job cuts as tech spending weakens

AFP - US software giant Microsoft announced the most sweeping job cuts in its history on Thursday as a worsening economy and weak spending on technology sent quarterly profit sharply lower.

Releasing its results for the second quarter of its fiscal year, Microsoft said it was cutting up to 5,000 jobs, or 5.5 percent of its workforce, over the next 18 months.

The Redmond, Washington-based company said net profit fell by 11 percent in the quarter from a year ago to 4.17 billion dollars on a revenue of 16.63 billion dollars, a two percent rise from a year ago.

It said earnings per share were 47 cents for the quarter that ended on December 31, less than the 49 cents per share forecast by analysts.

"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," Microsoft 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."

Ballmer's reassuring words failed to prevent Microsoft's shares from plunging on Wall Street, where they lost 11.71 percent to close at 17.11 dollars.

"In light of the further deterioration of global economic conditions," Microsoft said it was eliminating "up to 5,000 jobs in R&D (research and development), marketing, sales, finance, legal, HR (human resources), and IT (information technology) over the next 18 months, including 1,400 jobs today."

Microsoft employs some 91,000 people and rumors of job cuts at the world's biggest software firm had been circulating for weeks.

The company said the move was among various steps designed to manage costs, "including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing."

"These initiatives will reduce the company's annual operating expense run rate by approximately 1.5 billion dollars and reduce fiscal year 2009 capital expenditures by 700 million dollars," Microsoft said.

Global consulting firm Challenger, Gray & Christmas said Microsoft's move "is further evidence of the recession's increasing impact on the technology sector, which first appeared less susceptible to the weakened economy.

"However, Microsoft's announcement is particularly remarkable in that it is the first layoff event of this size and scope in the company's history," it added.

Ballmer, in a memorandum to employees obtained by the AllThingsDigital technology blog, said "consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures.

"Our response to this environment must combine a commitment to long-term investments in innovation with prompt action to reduce our costs," he said, adding that "the decision to eliminate jobs is a very difficult one."

In a conference call with reporters and analysts, Ballmer said he does not expect a "quick rebound" for the economy. "The economy shrinks and then it grows from a lower base. So no, I'm not expecting a bounce," he said.

The company founded by Bill Gates declined to release an outlook for the remainder of the fiscal year, citing the "volatility of market conditions going forward."

"Economic activity and IT spend slowed beyond our expectations in the quarter, and we acted quickly to reduce our cost structure and mitigate its impact," said Microsoft chief financial officer Chris Liddell.

"We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year."

Reflecting the overall weakness in personal computer sales, Microsoft said revenue from software sales fell eight percent to 3.98 billion dollars in the quarter.

Revenue from the server and tools sector grew 15 percent, the company said, while revenue from the entertainment and devices division rose three percent, driven by strong holiday demand for Xbox 360 consoles, which sold a record six million units in the quarter.