Microsoft cutting 5,000 jobs, sadface emoticons abound
by Laura June 
posted Jan 22nd 2009 at 10:34AM
From: Steve Ballmer
To: All Microsoft FTE
Subject: Realigning Resources and Reducing Costs
In response to the realities of a deteriorating economy, we're taking important steps to realign Microsoft's business. I want to tell you about what we're doing and why.
Today we announced second quarter revenue of $16.6 billion. This number is an increase of just 2 percent compared with the second quarter of last year and it is approximately $900 million below our earlier expectations.
The fact that we are growing at all during the worst recession in two generations reflects our strong business fundamentals and is a testament to your hard work. Our products provide great value to our customers. Our financial position is solid. We have made long-term investments that continue to pay off.
But it is also clear that we are not immune to the effects of the economy. 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.
During the second quarter we started down the right path. As the economy deteriorated, we acted quickly. As a result, we reduced operating expenses during the quarter by $600 million. I appreciate the agility you have shown in enabling us to achieve this result.
Now we need to do more. We must make adjustments to ensure that our investments are tightly aligned with current and future revenue opportunities. The current environment requires that we continue to increase our efficiency.
As part of the process of adjustments, we will eliminate up to 5,000 positions in R&D, marketing, sales, finance, LCA, HR, and IT over the next 18 months, of which 1,400 will occur today. We'll also open new positions to support key investment areas during this same period of time. Our net headcount in these functions will decline by 2,000 to 3,000 over the next 18 months. In addition, our workforce in support, consulting, operations, billing, manufacturing, and data center operations will continue to change in direct response to customer needs.
Our leaders all have specific goals to manage costs prudently and thoughtfully. They have the flexibility to adjust the size of their teams so they are appropriately matched to revenue potential, to add headcount where they need to increase investments in order to ensure future success, and to drive efficiency.
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.
I encourage you to attend tomorrow's Town Hall at 9am PST in Café 34 or watch the webcast.
While this is the most challenging economic climate we have ever faced, I want to reiterate my confidence in the strength of our competitive position and soundness of our approach.
With these changes in place, I feel confident that we will have the resources we need to continue to invest in long-term computing trends that offer the greatest opportunity to deliver value to our customers and shareholders, benefit to society, and growth for Microsoft.
With our approach to investing for the long term and managing our expenses, I know Microsoft will emerge an even stronger industry leader than it is today.
Thank you for your continued commitment and hard work.
Steve
Filed under: Misc. Gadgets
Reader Comments (Page 1 of 3)
duffiecochran @ Jan 22nd 2009 10:41AM
not a sign of anything really.
just todays world.
Paul A. Chapel @ Jan 22nd 2009 10:50AM
Yes, not to worry. Microsoft is still riding that horrible Vista wave. I'm sure Windows 7 will straighten things out, but this report does make me wonder about the Xbox 360. The Xbox lost about 6 billion in the first few years, and at least another 1 billion on the RRODs, but Microsoft turned around and said they were making a profit for a few quarters, while ignoring the massive loses they experienced those first few years. There was never any indication that they were making a profit over all.
Flashpoint @ Jan 22nd 2009 10:51AM
The world economies only seem to work on consumerism and manufacturing.
When the credit crisis hit and suddenly the middle class and the wealthy of the world could no longer purchase wildly, that's when you see sudden collapse and regression of the economy.
The way I see it, this is a sign of things to come unless we all focus on producing a new economy. Perhaps that's what the green movement is all about. Reproducing entire infrastructures to be energy efficient and environmentaly friendly. Not just a movement towards cleanliness - but, a transfer of political power.
Fortunately, while all this is happening, I'm working a safe city job in Education.
There are some sectors that I doubt will ever be endangered by the economy: The penal system, criminal defense, the military industrial complexes and medicine to name a few - but, definitely, education.
Fatima @ Jan 22nd 2009 12:24PM
How the hell is apple making so much money but Microsoft isn't??
Paul A. Chapel @ Jan 22nd 2009 11:19AM
@Fatima
Uh, Microsoft is still making money ($4.17 billion) if you read the article above, but compared to last year, their profit is sinking. People aren't buying PCs. And I think people are more likely to buy an iPod or a Wii for someone during Christmas than a brand new copy of Vista. Makes sense to me.
Tarnation @ Jan 22nd 2009 11:51AM
@flashpoint
Obviously you failed economics. All of those things are affected by economy. I work for a school system in Florida budgets are tightening due to the economy a school system close to the one I work in and is the one I live in is cutting things like Art and Music across the board.
All those other suffer horribly due to economic problems. Military, Obama is shutting down certain military stuff right now A. because he doesn't agree with their existence in the first place and B. because we as a nation can't afford to keep them going.
Medicine duh if people don't have jobs they can't pay for their pills and doctor visits.
The other things have always suffered due to economics. Criminal defense especially public criminal defense have suffered horribly. States aren't hiring in the penal system, just decreasing the number of guards per shift. If the Obama pulls out the troops in Iraq do you think the Military industrial Complex is going to have a ticker tape parade, no they will start firing people due to a decrease in demand if anything they will start selling to the Chinese.
JerkfacedFed @ Jan 22nd 2009 11:41AM
it has nothing to do with apple making money and microsoft not. its also NOT important at all how much profit the company made, but rather the profit margin. last quarter, microsoft's pm was 29%, and apple's was 14%. apple's overall profit went up from last quarter and microsoft's went down, but what are the margins?
Brutalgeuse @ Jan 22nd 2009 12:26PM
@Paul
I am over-simplifying for the sake of argument, but (pulling from wikipedia):
Xbox has sold 28 million units sold worldwide, as of 1.5.09. Assuming that every purchaser bought the "Core" version at the American price of $279, we’re talking 7.8 billion dollars.
Add in 17 million Xbox Live subscribers...assuming 10 million are Gold (which seems low)...and they are making somewhere between 500 and 1 billion dollars every year (again, at the American rates).
And this doesn't include downloadable content sales, extra accessory sales, etc.
To be certain - this is hardly air-tight logic, but I don’t think it’s implausible to assume that the Xbox division might (finally) be turning a profit.
Romesh @ Jan 22nd 2009 12:27PM
@Flashpoint
We got it the first time that you get paid a lot and have a secure job...why do you keep bringing it up??
Paul A. Chapel @ Jan 22nd 2009 12:36PM
@Brutalgeuse
But you're talking about revenue, not profit. If Microsoft sells an Xbox, most of that money is repaying manufacturing and shipping costs. And assuming they have that many Xbox Live subscribers, again Microsoft has to use that money to pay for bandwidth, maintenance, etc. It is a well known fact that Microsoft and Sony have been selling their systems well below manufacturing costs for years, while expecting to make up the money in games sales. The only company that doesn't follow that model is Nintendo.
Microsoft has been posting profits in the millions. A hundred million this quarter. I hundred million that quarter. There hasn't been so much profit in games that they've completely cleared out the 7 billion dollars they've lost.
I'm not saying that it's impossible that they're making a real profit, just improbable.
OneLove @ Jan 22nd 2009 1:29PM
Microsoft stimulus plan:
1. Release windows 7 early
2. Sell it for $100 with rebate to vista owners
Bobby @ Jan 22nd 2009 2:06PM
let's not buy from Ballmer unless he puts these people back to work
MonkeyHood @ Jan 22nd 2009 6:02PM
So your plan to make MS re-hire all these people is to not give them any money? Isn't that why they're firing people? Because they didn't get as much money as they though they would?
mynk @ Jan 24th 2009 2:59PM
@ bobby
you realize these people were fired BECAUSE enough people weren't buying right?
if you really care about those people... you'd go buy more microsoft products
except the thing is that microsoft isnt the only compnay affected.
and actually, microsoft is being very kind to those employees
to offer a whole outplacement center and severance pay and other benifits
a lot of companies are just laying people off now
and all they can depend on is unemployment insurance
nerdtalker @ Jan 22nd 2009 10:42AM
Surprisingly well-crafted from Ballmer. Unfortunate indeed.
Forrest @ Jan 22nd 2009 10:50AM
I'm no Steve hater, but I doubt he wrote that himself. They have people for that kind of thing.
John D @ Jan 22nd 2009 10:53AM
Correction - they HAD people to do that sort of thing...
DWells55 @ Jan 22nd 2009 12:51PM
Hey, please write this PR letter for me.
*6 hours later*
Thanks. Oh yeah, you're one of the people in the letter.
Kevin @ Jan 22nd 2009 10:43AM
It's truly sad what is happening to our nation's workforce... Let's hope things improve soon.
Billy Gun @ Jan 22nd 2009 10:43AM
Hooo what can I say? For those ho lost their jobs, I hope they find a new one soon. If they worked on MS, than for sure they are all capable and wise people.
balls @ Jan 22nd 2009 1:47PM
Not necessarily.
There are people who approved the bad ideas that sunk Vista, and there are also the worthless consultants who just crank out spreadsheets.
THizzle7XU @ Jan 22nd 2009 2:05PM
@JWC
"Historically GDP has grown more during Democratic administrations than in Republic administrations. Source: NYT."
You mean you got that little tidbit from the paper that hasn't endorsed a Republican presidential candidate since Ike in the 1950's, and only 5 since the 1884 election?
It must be true!
LondonConsultant @ Jan 22nd 2009 2:05PM
"the worthless consultants who just crank out spreadsheets"
Hey, stop dissing my spreadsheets!
iphonerulez @ Jan 23rd 2009 2:15PM
Those high-tech white boys will find a new, higher paying job in a day or so. No point in grieving over that. For certain people in the U.S. there's always jobs for the taking.
r3loaded @ Jan 22nd 2009 10:44AM
I've a feeling we'll be seeing more Engadget articles with Great Depression pics..
The US is lucky this time round, it'll bounce back much more quickly due to its massive economy (and Obama's spending) than Europe.
kjb434 @ Jan 22nd 2009 10:48AM
Spending is what will make it worse. FDR spent like crazy and never got us out of the Great Depression and actually made it worse. It wasn't until WWII that the depression started to ease up.
Learn your history or you are doomed to repeat it! Oh Sh*t we elected BHO, who is championing the failed policies of FDR to save our economy.
Forrest @ Jan 22nd 2009 10:57AM
Sources, kjb? From what I've read, increases in government DID have a positive impact. Things were just so bad it took years to recover.
Also, what do you think the government did during WWII? You could argue that the spending done by FDR pre-war just wasn't enough, and it required the huge outlay of government funds to build tanks and planes to really get our economy running again.
The common thread of recession exit it spending. Someone has to start spending money again, and lots of it. Pre-FDR, we waited for industries to restructure and do it. Post FDR (and Keynes), we expect government to do it. The basic rules didn't change, just who writes the checks.
At least the spending we're planning to do now will be on things that might be around for awhile.
Mark Leach @ Jan 22nd 2009 11:12AM
Forrest, do you have a source? Keynes wrote FDR a public letter warning about the massive spending habits of the Government.
JWC @ Jan 22nd 2009 11:28AM
Historically GDP has grown more during Democratic administrations than in Republic administrations. Source: NYT. So it's a really good thing we didn't elect McCain. Re: the FDR comment: economists aren't in agreement about government spending vs. tax cuts helping the economy more. Your comment tells me that you're smarter and know more about economics than most economists. I salute you sir.
JWC @ Jan 22nd 2009 11:29AM
(but it was a one finger salute :P)
Mark Leach @ Jan 22nd 2009 11:35AM
Because GDP is made up of consumer and GOVERNMENT SPENDING. That should tell you to not trust GDP knowing how often Government fudges the numbers in its favor.
Patrick #2 @ Jan 22nd 2009 11:41AM
Sources aren't too hard to find:
http://en.wikipedia.org/wiki/The_great_depression
FDR wasn't spending enough, only 40% of GDP debt, when his economists were telling him to spend more. He kept us in the depression by not spending. Yamamoto got us out of the depression by forcing us to spend 128% of GDP debt (see citation above). However, you can't spend too much either, otherwise the currency becomes worthless when treasuries and bonds become worth only the paper they were printed on (caused by too much treasury printing done to create debt). Thus, if the government spends too much, it won't matter that your accounts are FDIC insured, since what they will give you will be worthless too. Everybody is saving now, but if this happens, all of what you saved will be worthless, only precious metals and commodities will be worth anything (this is extreme and I don't think it will happen, but it is how the theory goes, and has happened before in history).
Forrest @ Jan 22nd 2009 11:49AM
Mark,
Granted Wikipedia should always be only a starting point for research, but here's a link:
http://en.wikipedia.org/wiki/Keynesian_economics
From the article:
"Keynes argued that the solution to depression was to stimulate the economy ("inducement to invest") through some combination of two approaches :
* a reduction in interest rates.
* Government investment in infrastructure - the injection of income results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.[1]
"
In fact, from Keynes' letter to FDR: (http://newdeal.feri.org/misc/keynes2.htm)
"Individuals must be induced to spend more out o their existing incomes; or the business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes in the hands of their employees, which is what happens when either the working or the fixed capital of the country is being increased; or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money. In bad times the first factor cannot be expected to work on a sufficient scale. The second factor will come in as the second wave of attack on the slump after the tide has been turned by the expenditures of public authority. It is, therefore, only from the third factor that we can expect the initial major impulse."
He says that the people can't afford to spend, and that businesses will only start hiring and paying people more once they have confidence (or lower interest rates), and THAT can only happen after the government has dumped money into the system.
Again, from his letter:
"I am not surprised that so little has been spent up-to-date. Our own experience has shown how difficult it is to improvise useful Loan-expenditures at short notice. There are many obstacle to be patiently overcome, if waste, inefficiency and corruption are to be avoided. There are many factors, which I need not stop to enumerate, which render especially difficult in the United States the rapid improvisation of a vast programme of public works. I do not blame Mr Ickes for being cautious and careful. But the risks of less speed must be weighed against those of more haste. He must get across the crevasses before it is dark."
In other words, 'uh...it is risky, but please spend more, and faster'
And finally:
"You may be feeling by now, Mr President, that my criticism is more obvious than my sympathy. Yet truly that is not so. You remain for me the ruler whose general outlook and attitude to the tasks of government are the most sympathetic in the world. You are the only one who sees the necessity of a profound change of methods and is attempting it without intolerance, tyranny or destruction. You are feeling your way by trial and error, and are felt to be, as you should be, entirely uncommitted in your own person to the details of a particular technique. In my country, as in your own, your position remains singularly untouched by criticism of this or the other detail. Our hope and our faith are based on broader considerations."
In other words "your specific approach could use some work, but you're on the right track". Keynes then offers several suggestions on how policy might be changed to have a more efficient impact.
Again, like I said...maybe the early attempts at deficit spending were just insufficient? From my interpretation of his letter, it seems Keynes felt that way, at least early on.
THizzle7XU @ Jan 22nd 2009 2:06PM
@JWC
"Historically GDP has grown more during Democratic administrations than in Republic administrations. Source: NYT."
You mean you got that little tidbit from the paper that hasn't endorsed a Republican presidential candidate since Ike in the 1950's, and only 5 since the 1884 election?
It must be true!
Mycroft @ Jan 22nd 2009 3:47PM
It is a really sad state of of afairs when people are still relying on Keyes when his theories have been proven wrong so many times.
I would suggest reading "Capitalism and Freedom" by Milton Friedman.
In the early 90's Japan's economy tanked and the Japanese government went on a Keynesian style spending orgy to "repair" their economy.
Today, Japanese stocks are still, nearly two decades latter only 80% of their 1980s value.
Same thing happened in North Korea, but the Korean government did not bail out the bad investments on the backs of the tax payers, how are they doing now?
The facts are these: During FDR's orgy of spending (in which unemployment remianed at about 20%) the economy did not improve - at all. It was only when the Federal Government conscripted 12 million Americans, imprisoned a large number of foriegners, seized their bank accounts, instituted rationing, seized private property of citizens and foriengers alike, and otherwise set up a near totalitarian government did the economy recover - and then only after nearly a decade.
Our current economic woes will right themselves in 6 to 12 months with or without Government assistance. Big spending only increases the likelyhood that the recession will last longer and go deeper. and possible slide us into a depression.
When the crash happened in 1929, we were not in a depression - just a recession. The depression hit when the administration decided the only way to "fix" the problem was to institute federal spending programs, increase taxes and raise tarriffs. Government's attempts to alter the market corrections (which may have initially been caused by the newly founded Federal Reserve, anyway) caused the depression.
Sounds awfully familar to today's tactics.
Just ask yourself this: Why the big rush to spend nearly a trillion new dollars? The first half a trillion the Government doled out to the losers had no perceived benefit to the economy, so does throwing good money after bad make sence? Why not simply wait six months or a year, see what the market will do on its own, before we socialize the losses (while keeping the profits private) of all these bad investments?
Unless, of course, you all want to return to the days of rationing, conscription, detainment camps, and near Total Government.
Forrest @ Jan 22nd 2009 4:45PM
"The facts are these: During FDR's orgy of spending (in which unemployment remianed at about 20%) the economy did not improve - at all. It was only when the Federal Government conscripted 12 million Americans, imprisoned a large number of foriegners, seized their bank accounts, instituted rationing, seized private property of citizens and foriengers alike, and otherwise set up a near totalitarian government did the economy recover - and then only after nearly a decade.
"
I'm curious what version of history you're being fed, and who is feeding it to you.
Take a look at a couple of graphs:
http://en.wikipedia.org/wiki/File:1930Industry.svg
Industrial output of the US, from 1928 to 1940. Notice the *deep trough* that bottomed out mid-way through 1932. That is before FDR took office and started implementing the first New Deal.
The second:
US GDP from 1920 to 1940. Again, notice the *deep trough* that bottomed out mid-way through 1932.
Both of those graphs indicate that both industrial production and GDP had reached pre-depression levels by the time the US entered WWII. Granted some of that was probably a ramping-up for war, but if you want to look at the actual numbers (instead of insulting people) you can see there were definite increases in both indicators starting shortly after FDR took office.
One final graph for you:
http://en.wikipedia.org/wiki/File:US_Employment_Graph_-_1920_to_1940.svg
Total US employment (ignoring farms and WPA) from 1920 to 1940. You really shouldn't make things up when it's so simple to find evidence to the contrary. It doesn't help your argument. It's true that private sector employment didn't recover as quickly as the rest of the economy, but there WAS some improvement. Also, don't forget that the New Deal was a lot more than just a bunch of federal spending. There were some moves early on that were VERY hostile to business (look up the NRA) - things that put today's cries of 'socialism' to shame.
Some would point to the recession of 1937 without seeing it in the broader context of the depression, and offer that as proof that the New Deal 'failed'. The New Deal was far from perfect, but all the research I've done tells me that deficit spending, when done properly, can soften the effects of a recession.
Forrest @ Jan 22nd 2009 4:46PM
Bleh, missed the link to US GDP from 1920 to 1940:
http://en.wikipedia.org/wiki/File:Gdp20-40.jpg
Mycroft @ Jan 22nd 2009 5:19PM
Forrest:
First off, I did not insult anyone. Second, unemployment averaged %17 percent throughout the new deal - I did not make this up. Third, I suggest you need to look at other resources if you wish to complete your research.
http://www.cato.org/pub_display.php?pub_id=3357
Mycroft @ Jan 22nd 2009 5:40PM
Forrest:
Here is a more topical article about why deficit spending is a bad idea, from the same brilliant minds of Cato.
http://www.cato.org/pub_display.php?pub_id=9901
Forrest @ Jan 22nd 2009 6:29PM
Mycroft,
Sorry, I guess you weren't insulting. Maybe a better word would be dismissive? There is a lot of disagreement in this area...I think anyone who flatly claims they have the answer is foolish.
Anyway, the first article doesn't provide any data. It just claims that the New Deal 'prolonged unemployment' that 'averaged' 17%. It 'averaged' 17% because it was higher at the start of the decade, and lower at the end. If you look at the data, that is.
That said, I don't hold to the idea that the New Deal was the magic bullet that solved all our problems. There were some really silly ideas introduced. Some *very* harsh business regulations that ultimately hurt growth. But even the article you reference places some of the blame on tax increases. If anything, that article provides support for *deficit* spending, not 'redistribution of wealth' like what the New Deal attempted. The New Deal gave money back, but it also took money away, so it didn't do the kind of good to the economy that it might have otherwise. I think that's what Keynes was getting at in his letter to FDR - the provisions of the NIRA weren't the best to bring about recovery. Deficit spending implies public funds being introduced without an offsetting increase in public revenue. In other words, spend more money and don't raise taxes.
As for your second reference, I would agree to some extent. But it makes the assumption that government intervention is intended to prop up overzealous spending, thus preventing the kind of necessary correction that recessions provide to the economy. I don't think that's the case at all, though. Government intervention should exist to minimize the fluctuations - both positive and negative. Unfettered capitalism can be damned harsh on society, and deadly to governments.
I think in our most recent case the government didn't do *enough* to minimize upward fluctuations in asset appreciation and rampant consumer debt, so the resulting crash afterward has been (and will continue to be) rough. Sure, with no government intervention we'll eventually see an upswing. But just how bad will it get in the meantime? There comes a point where government intervention would be *expected* by a majority of the population, or serious civil unrest could result.
mike @ Jan 23rd 2009 6:06AM
"The US is lucky this time round, it'll bounce back much more quickly due to its massive economy (and Obama's spending) than Europe."
Hm.. Interesting. Most people believe the US is the CAUSE of the global economic crisis, and in fact will be decimated, while those who are merely investing in the US (eg China, Europe, Middle East) will lose SOME wealth.
I guess you missed the part about how, the US Economy was fictional, mostly fluff.
Quick question: what is made in the US? What is made in China? What is made in Korea/Japan? Think about that.
r3loaded @ Jan 23rd 2009 6:21AM
@mike
That exactly is the irony of the whole situation.
7egend @ Jan 22nd 2009 10:45AM
Can't beat them, join them.
CJ @ Jan 22nd 2009 10:45AM
Five thousand is not as bad as some people were predicting; Still bad, but overall better than expected.
Andir3.0 @ Jan 22nd 2009 11:30AM
5000 is around 5.5% of their workforce.
CJ @ Jan 22nd 2009 10:45AM
Oh, and In before annoying people commenting on how Apple hasn't downsized yet.
kirbythepink1 @ Jan 22nd 2009 10:56AM
what are you talking about? Apple's already "laid off" Jobs...
matt @ Jan 22nd 2009 11:21AM
*Hands Kirby his coat*
CJ @ Jan 22nd 2009 10:46AM
Oh and In before annoying people commenting on how Apple isn't downsizing yet.
Paul A. Chapel @ Jan 22nd 2009 10:56AM
You're so paranoid about people praising Apple that you had to say it twice. Good lord.