Microsoft deleting 5,000 jobs after profits slip

Software giant letting go of 1,400 employees today after lower-than-expected $4.17 billion in quarterly profit; Xbox division's income rises 14% to $3.18 billion.

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For many employees in Microsoft's headquarters outside Redmond, Washington, today began with a coffee-spit-take-worthy shock. After disappointing October-December quarter earnings, the company announced that it will eliminate 5,000 jobs from its worldwide payroll of nearly 90,000. The cuts will be made in the marketing, sales, finance, legal, HR, IT, and research and development departments during the next 18 months, with 1,400 pink slips being sent out today.

"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," said Microsoft CEO Steve Ballmer 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 confidence was partly justified by the fact that, although Microsoft's earnings were below expectations, the company remains immensely profitable. For the three months ended December 31, the company's net income--aka profit--slipped from $4.70 billion, or $0.50 per share, in 2007 to $4.17 billion, or $0.47 per share, in 2008.

A survey of analysts conducted by the Thomson Reuters news service had been expecting between $0.49 and $0.50 per share. The fact that the decline came despite quarterly earnings increasing $260 million to $16.63 billion year-on-year caused Microsoft's stock to drop sharply. As of press time, Microsoft's share value had fallen about 10 percent, trading near its 52-week low of $17.50. Immediately after the announcement, the stock sunk even lower to $17.19 per share.

Despite the mass layoffs and profit dip, there were some bright spots in today's Microsoft announcement. One of them was the Entertainment and Devices division, which makes the Xbox 360 console and includes Halo 3, Fable II, and Gears of War 2 publisher Microsoft Game Studios. Bill Koefoed, general manager of investor relations for Microsoft, broke down the sector's earnings in a conference call with analysts.

"[The] Entertainment and Devices division revenue grew 3 percent [year on year] to $3.2 billion," explained the executive, rounding up the actual $3.18 billion figure. "A record 6 million consoles were sold in the quarter, growing [the user base] by over 41%. In Europe, Xbox 360 sales nearly doubled those of the previous holiday season. Based on US NPD numbers released last week, Xbox 360 outsold PS3 two to one. We continue to lead the industry with our software attach-rate ratio of 8 to 1."

Koefoed also mentioned that, thanks in large part to the Netflix-enabled New Xbox Experience launched in November, Xbox Live memberships have skyrocketed 70 percent year over year. The Xbox 360's online service is now tied with the PlayStation Network--which includes PlayStation 3 and PSP users--at 17 million members.

Chris Liddell, Microsoft's senior vice president and chief financial officer, played up the 360's performance during the analyst call. "The Entertainment and Devices division delivered revenue above the high end of our guidance, driven by a record number of consumers purchasing Xbox 360 consoles during the holiday season," he said.

However, the CFO also warned that there could be clouds on the horizon for the game industry. "The Entertainment and Devices division is highly dependent on consumer spending, and while we feel good about the first-half results, a shrinking consumer-spending environment would weigh on the segment's results in the second half," cautioned Liddell. He went on to say, "Console revenue will likely decline as a result of our earlier pricing actions," referencing the fall price drop of the lowest-end 360 model, the Arcade, to just $199--$50 less than the previously cheapest Wii.

Discussion

177 comments
ChrisJukio
ChrisJukio

@misterstatus, yep, and the thing is, stuff like what you referred to (and many others quite alike) are just so simple to get, just so obvious and like some cool guy once said, "nobody seems to notice, nobody seems to care" it was George Carlin who said that, even though it wasn't about economy s**t, but about some other s***t the world is filled with bleh & blah Love to us allY

ShroudedEagle
ShroudedEagle

@misterstatus: You've pretty much summed it all up there, lol. Nice one.

misterstatus
misterstatus

Gotta love the way the world works. News media, desperate to keep their own jobs, create sensationalized stories about a recession because they know it will frighten people into watching the news. The people, now frightened, stop spending their money, which causes the economy to crumble, which the news media then use as proof of a recession. Meanwhile, companies like Microsoft, which would lay off their entire work force to maximize profits if they could, use the public panic about a recession as a perfect excuse to lay off employees and earn more money for their investors, who are all laughing at how easily manipulated most people are.

MSG-Deathscythe
MSG-Deathscythe

microsoft makes products made in china look awesome. rrod360 sux. vista sux even more.

Redthing
Redthing

Bill, we only snagged $4.17 billon this time..let's fire some people so we can earn 1% more!!

Petri87
Petri87

@sirbargearse - Thats true that the economic crisis back in '92 was easyer on the games industry and her are some points why. There weren't nearly as many games coming out back then as there is now and badly developed games had an easyer time selling since the games review bussines wasn't as wide spread as it is now and many reviews were controlled to some extent by publishers and console makers. A dev team was for to most part smaller then 10 ppl and the games had a shorter dev time. That means low cost for game development Publishers and developers got a bigger proffit from each copy of a game sold because of the smaller budget. The money that would go into a budget game to day exceeds a AAA title back in the days. companys were smaller back then and could live of the sales of a game for a long time even if it wasn't a major succes. Several games were "garage games" meaning made by ppl who were not getting payed untill a publisher picked it up so that meant that publishers didn't need to pay for the dev cost, just the publishing rights. A falled game wasn't the end all for many companys back then, even the smaller ones could make games that didn't sell well and still continue running. Many companys like say Sega and Midway(and many others) had a steady stream of money coming in from the arcade bussines. Whit Midway releasing MK back in '92 they were in their golden years because of the huge succes of MK and other Midway arcade games. Whit higher dev costs and personel cost its harder for a fev/publisher to just live of the sales of one game for a long time and that means that after every prodject they have to restructure their work force in a way that would save them money. Now whit the costs higher and the profit margine lower it is a very fragile industry that could crumble or force smaller publishers and developers out of bussines whit one falled game. (like Free Radical)

Darth_Ultima
Darth_Ultima

The stock market is so flaky these days. I don't understand why people are selling perfectly good stock from a company that is still profitable when so many other companies are tanking. If I had money to invest I would be investing it in Microsoft right now. Of all the companies whose stock prices are being lowered by this recession Microsoft has a good chance of rebounding.

franklucito
franklucito

I still don't understand people. You know why people are losing jobs? Because the media keeps scaring the crap out of people with the words "recession" and "another great depression". When people get scared, they panic and stop spending money. When people stop spending money, businesses and companies start going under. If the damn media would just keep their yaps shut we wouldn't be in this mess. Oh, and Microsoft, last time I heard, any profit is good profit. Just because it's not as much as you "predicted" doesn't give you an excuse to let people go from their jobs. Come on people... It's only bad if you believe it's bad. Keep spending your money the way you were and we will all be fine.

sirbargearse
sirbargearse

Back in 1992 during the last big economic disaster the gaming industry was seemingly immune to the problems of the world. I remember working for Sega back then and they were gaining record sales. But now with production costs growing through the roof... you have to say that it's much more volatile for the gaming industry to stay afloat. Will be interesting to see who grows, who merges and who gets deleted!

joevit
joevit

@Hvac0120. It was kind of a joke. Sorry man.

terror_ninja
terror_ninja

its not like windows is the best OS in the world. and all the good computers are made by other companies so its just stupid that those people lose their jobs.

dyingdead
dyingdead

Microsoft deserve to lose money...greediest company ever! Shame about the people losing their jobs though

GRAW2596
GRAW2596

All you hear about nowadays in the gaming business is about people losing their jobs.

ZonaBoy89
ZonaBoy89

After seeing this i guarantee another price drop will happen in the spring time. I remember a few months ago a report came out saying that the recession wouldnt effect the gaming industry but if 5000 people are losing their jobs and Midway is less than a month from going bankrupt i'd say the recession is starting to set it now.

Hvac0120
Hvac0120

@joevit I really don't care what they call the next Xbox. I use Xbox 1080 as a pun on the 1080 screen resolution. 360 was supposedly used because MS wanted to turn things around for the platform. They've pretty much followed through. I'll probably continue to call the next Xbox, Xbox1080 until we start hearing names from Microsoft and their moles. I'm not trying to state it like I really know the next name if that's what you imply.

BenBenBen93
BenBenBen93

"I wonder if this whole economy downturn will actually hit the software industry as hard as everyone thinks it is going to... I mean when money gets tight do consumers run from one of the cheapest entertainment investments? or will they instead quit going to $30 movies (2 hours entertainment) instead? I think all of these pre-emptive layoffs are retarded." well people now don't want to pay £40 on a game when their are great games at like £20 like bioshock and GTA etc

BenBenBen93
BenBenBen93

not as bad a sony poor Japanese lot have actaly lost money ather than gained like microsoft bill gate also left at the perfect time lucky mut No and people who find it fun are people similar to me i don't find it funny but i believe in communist ideas like state run stuff of course not the extreme side i just believe the government should have a little say in everything company do with money including those greedy banks.

joevit
joevit

@kavadias1981. It is what it is. I dont think you under stand how it works. Some business can see that they might be in some crap long before it happens. So they do what they can to make things work and bring back people that they had to let go. It's a layoff, They will come back. Also the people that were layed off will get some kind of pay. It might not be what it was but it is something. Its like a kid. You do what ever you can to make it strong and grow and be something. You would do what it it takes to keep it from falling and end in death. If it die's. Even more people will be with out a job.It's better to save 500 people than 10. Or in this case, its better to save 80,000 people than 5,000. I know it sucks and I do feel for them, but thats just the way it is.

GANGSTASAN
GANGSTASAN

Yeah, and some people think it's funny. This is an economy crisis, people are losing jobs. What the hell is amusing about that?

kavadias1981
kavadias1981

I hate it when people make the excuse "it is just business" to act like jerks and lay people off. I effing hate it.

joevit
joevit

@Hvac0120. the next gen xbox wont be called Xbox 1080 or 720 or what ever # you wanna call it. MS has come out to say the next gen xbox wont deal with #'s. They did not rule out calling it xbox3. But why would you wanna call it that?

Yuck_Too
Yuck_Too

poor MS...only made $4.17 Billion in profit this Quarter...lol

Hvac0120
Hvac0120

So, instead of just taking a financial hit, Microsoft lays off 5,000 people. Cause ya know; it's more important that Microsoft keep the money than people keep their jobs... That's business for you and is expected, yet sad. The price drop on the Xbox360 really boosted sales. I think the Xbox360 will continue to sell pretty well this year, but I have a feeling that we are going to start seeing the decline in sales of hardware through this year and next. 2009 and 2010 should prove to be the years where software sales make the difference. I expect to start hearing rumors of Xbox 1080 by Spring 2010. _

kavadias1981
kavadias1981

I am really concerned about the smaller developers. They usually come out with the most innovative new stuff.

joevit
joevit

One thing I do know. I just got back from the UPS store to send my 360 in for the 15th time. Maybe they will just give me a new one so I can send it back in in less than a year and not 3 days later.. They might make some cash that way. lol

raahsnavj
raahsnavj

I wonder if this whole economy downturn will actually hit the software industry as hard as everyone thinks it is going to... I mean when money gets tight do consumers run from one of the cheapest entertainment investments? or will they instead quit going to $30 movies (2 hours entertainment) instead? I think all of these pre-emptive layoffs are retarded.

markharris31
markharris31

Do any of you run massive publicly traded companies? I didn't think so. One of the main responsibilities of executives in public companies is to provide shareholder value. The CEO is held accountable by his boss... the shareholders themselves. Many of you talk about shareholders as though they are evil, as though they don't care about the company, as though they are meaningless in the face of 5,000 jobs. Guess what, those 5000 jobs were only possible in the first place because of the shareholders, the MILLIONS of shareholders to whom MS owes return on investment. That's right, millions of people, through direct investment or through funds (your 401k, IRA, etc) are part owners of MS. They cared enough to invest their own money in a company, and that company has a responsibility to do everything it can to return as much investment as possible to those shareholders. That's how the system works. Can companies get too greedy? Of course they can. That doesn't help shareholders, since cutting costs to the point that you can't continue to innovate and put out good products destroys your revenue streams and drops stock value. I don't really see that being the case with MS right now. I feel bad for the employees that are being laid off. I feel better about the 85,000 people that still have high quality jobs with a great company (MS benefits are awesome) because of sound management and great shareholder value. If you read more, MS plans to create new positions as well, so in total there will only be 2000 to 3000 cuts. Besides, if MS can trim some fat and get more efficient for when the economy turns around they can add more jobs as they grow. No one wants to see people losing jobs (especially at MS and Sony and N ), but we can't just start assuming that a company is evil because they trim overhead.

Mauller
Mauller

@Everiez Unfortunately all the rich people who own majority of MS stock feel that they want to be richer. So their solution is to just lay people off so that they get more of the profits. They truthfully have no reason to lay anyone off and could continue to operate exactly as they are. Go shareholders.

DiscGuru101
DiscGuru101

This could cause a chain reaction. At my work, this news sent chills across our marketing department...

hatieshorrer
hatieshorrer

Best of luck to the workers at MS and the one's that were layoffs.

Everiez
Everiez

I don't see any good reason to lay off employees here just because of profit slip not loss. Just an excuse to lay off underperformed employees. As for market share posted here, it's just market sentiment BS to please less knowledgeable shareholder craving for profit.

Reckless_AWK
Reckless_AWK

Its really that this is happening everywhere. Hopefully things turn around quickly. SHARE THE WEALTH !!!!

handofthedragon
handofthedragon

It's always sad to see people lose there jobs. I hope M$ can turn it around quickly for the sake of there employees.

Shadow_zone
Shadow_zone

that makes me sick.. How bout giving some executives a pay cut.. $4.17 billion is allot more than Ill ever see. And they made it in one quarter.. What are they whinging about? Greedy bastards...

Pete5506
Pete5506

dang, I feel bad for all the people that lost jobs

HappyBB
HappyBB

I am so angry and tired of seeing all these mega-rich companies laying off their employees!! It's not that their existence in the market are endangered in this economic recession. They only care about saving their own asses and leave those people who contributed their lives, time, energy and resources to make them mega rich to rot!! They have the money to survive with all those head-count intact. Or, they should not hire that many people in the first place! Sigh..., the evil of capitalism.

karateyoyo
karateyoyo

I guess it's going to be almost impossible to get my job for video gaming... especially around 2015/2016. The next few generations like mine are gonna be burning in the depths of hell.

Carpe_Noctum
Carpe_Noctum

This is what is wrong with publicly traded companies, make huge profits and still not enough so 5,000 on the street. All traded companies do this, to apease the share-holders. MS stock has been good to me but I don't care for the company much.

Jaguar_Shade
Jaguar_Shade

So because they didnt make enough money they're cutting people in IT and Research and Development? huh! u make products. And they're cutting sales and marketing members? What? This is when you SHOULD be marketing to gain sales and increase the amount of consumers.

chrispn
chrispn

And don't forget the extremely high pay that the upper CEO's receive each year. Here's looking at you Bill Gates and Steve Ballner. Have you heard of a paycut and keep those 5000 people in jobs.

snakes3425
snakes3425

@LindBergh2007 I was refuring to all three of them

snoop_rogg
snoop_rogg

xbox is dead... thats what people said when sony was cutting jobs does that hold true for m$?

Jstation3
Jstation3

Economic crisis touches everything. I didn't thought Microsoft was going to be saved of it. It is a lot more hard than it looks. I hope they don't continue deleting this jobs just to get more profit, I mean, I really agree with you druggernaut, that the simple and shameful act of greed. Maybe sometimes you have to make sacrifices. :(

xxxTristamxxx
xxxTristamxxx

The video game industry isn't safe from cut backs..no one is...no matter every one is affected one way or another....it depends on where you sit on the food chain as it were.

dRuGGeRnaUt
dRuGGeRnaUt

to everyone saying "wow even microsoft isnt safe from the economic crisis" If you would have read the FULL ARTICLE you would read they posted an INCREASE in all sectors. Overall it wasnt what they had "expected". They arent loosing money, they just wanted to make MORE PROFIT than they already did. So they fire 5,000, EVEN THOUGH they made profit... WTF?? This is an act of SHEER GREED. I know corporations are all about making $$$ buy seriously, they made a profit, unlike other companies *AHEM* sony, why in the hell are they downsizing?

zintarr
zintarr

Blame CrapVista for this one.

GeigerdolylWodd
GeigerdolylWodd

However, the CFO also warned that there could be clouds on the horizon for the game industry. "The Entertainment and Devices division is highly dependent on consumer spending, and while we feel good about the first-half results, a shrinking consumer-spending environment would weigh on the segment's results in the second half," cautioned Liddell. He went on to say, "Console revenue will likely decline as a result of our earlier pricing actions," referencing the fall price drop of the lowest-end 360 model, the Arcade, to just $199--$50 less than the previously cheapest Wii

Bring out the DAMN GAMES. Stop delaying give us something to sink our teeth into. Cell Immersive? I'm looking at you. Whatever happened to project Offset anyway? When exactly is Cellfactor coming out for xboxlive arcade?

NeoNavarro
NeoNavarro

Geeez what the hell is going on these days...?

Jd1680a
Jd1680a

Microsoft made $3.2 billion in revenue from the Xbox 360. Did they make any profit?