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By | Gavin Clarke 15th January 2009 19:44

Microsoft sharpens axe as PC sales drop?

Cheer-free holiday quarter

Fresh reports of Microsoft's first-ever job cuts are again circulating, with the Wall St Journal writing that the company is reviewing its options.

The Journal has reported that the cuts could come next week but that Microsoft is considering cutting fewer than the 15,000 staff rumored in recent weeks - a figure that would total 16 per cent of its workforce. It also said Microsoft could end up finding alternative positions for staff, avoiding the need to make layoffs.

If true, the cuts would come in the week Microsoft announces its second-quarter results - due on January 22. A Microsoft spokesperson said the company would not comment on "rumors and speculation".

Rumors of January layoffs surfaced last month, and are going around the "financial grapevine" - meaning Wall Street analysts.

Any cuts would follow what's shaping up to have been a worse-than-expected holiday shopping season - a season during which Microsoft traditionally profits handsomely as consumers buy PCs and gadgets running Windows.

US retail sales - excluding cars - fell twice as much as had been expected during December - down 3.1 per cent, Bloomberg said. And, rather than growing, sales of PCs during the whole of the fourth quarter fell by 0.4 per cent year-over-year and 2.5 per cent sequentially to 77.3 million units, according to number-crunching analyst IDC.

Sales of portable PCs increased 20 per cent, but that was down 50 per cent on the year, while sales of desktop machines slumped 16 per cent.

Microsoft will have banked on the fourth-quarter to not just sell PCs but also Windows mobile devices and Zunes. Last year, Microsoft's second fiscal quarter - which spans the holiday shopping season - reported $16bn in revenue, $2bn more than its previous record.

Despite its efforts to go online, the PC and server business remains Microsoft's bread and butter. Should Microsoft make cuts, or move staff around, changes will likely be felt in the loss-making online units and - possibly - entertainment and devices.

Microsoft's drive online has helped contribute to today's massive head count: numbers have grown 28 per cent to 91,000 in just two years and 49 per cent since 2005, with accompanying increases across R&D, sales, marketing, and support.

Company chief executive Steve Ballmer last week re-committed Microsoft to continued spending on R&D while speaking at the Consumer Electronics Show (CES). Last year Microsoft spent $8bn on R&D, an amount that's grown steadily since 2005 as it invests online. ®

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