Beyond Binary

Microsoft has found a powerful incentive to get people to use Windows Mobile--at least those within its own ranks.

The software maker has stopped paying for cellular data plans for those using BlackBerries, iPhones and all manner of non-Microsoft devices.

Plenty of Microsoft workers still have an iPhone, but as of earlier this year, they can no longer be reimbursed for their data plan unless they switch to a Windows Mobile-based phone.

(Credit: Apple)

Although the move took place earlier this year, it is only making headlines now, thanks to an article on Silicon Alley Insider.

It's hardly a shocking move. Lots of companies standardize on a particular mobile operating system or two and limit reimbursements to those devices.

A Microsoft representative confirmed on Monday that "the data plan reimbursement for Microsoft employees is limited to Windows Mobile devices."

"This policy took effect as part of the broader cost saving measures announced earlier this year," the representative said in an e-mail. The software maker has trimmed its product line, cut staff, and also pulled back on spending on travel, vendors and contractors.

In the wake of additional layoffs on Tuesday, Microsoft is scaling back--but not totally eliminating--several products. After cutting 1,400 jobs in January, Microsoft said on Tuesday that it is cutting more than 3,000 more jobs.

Among those products affected are Microsoft's ResponsePoint phone system, its .Net Micro Framework, and its MSN Direct Service.

Microsoft said it will continue to sell and support the initial version of ResponsePoint, which is aimed at small businesses.

"We will also continue to promote the product online and spotlight compatible 3rd party services and add-on products," Microsoft said in a statement. "The team is evaluating the strategy for the next version of the product and will continue to investigate the opportunity in the small business market."

Things are similar for MSN Direct, which offers traffic and other services to devices like in-car map systems.

"While the group was impacted by yesterday's job eliminations, they will continue to maintain the current MSN Direct service and invest in developing a low cost receiver for multiple devices," Microsoft said.

As for the .Net Micro Framework, Microsoft said it will make the project a community source effort.

"Microsoft will continue to support existing customers according to any agreements that we have in place with them, and will honor our lifecycle support pledge," Microsoft said. "Forums continue to be available at MSDN. After moving to the community model, new customers will be supported by the community."

The software maker said it will eliminate the royalties that had been associated with the product. As a result of the shift, Microsoft said the team was affected by job cuts and the remaining workers will shift to the broader .Net Framework team.

Microsoft also confirmed it made deep cuts at Massive, its in-game advertising unit. However, the company said a report Tuesday that three-quarters of staff were cut was an overstatement. Tuesday's cuts affected 28 percent of full-time staff. The cuts also apparently hit hard two Microsoft-produced magazines for developers, but I am still working on getting details on that front.

Also of note, of course, is the fact that after the January cuts it took some time for some of the product decisions to be clear. At the time, Microsoft said it would cut 5,000 jobs over an 18-month-period.

Meanwhile, Microsoft left the door open to further job cuts.

"As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations," Ballmer said in a memo to staff.

The company has also taken other actions including cutting spending on vendors, travel, and contractors, and even canceling its annual picnic.

In the wake of handing out 3,000 layoff notices Tuesday, Microsoft CEO Steve Ballmer sent an e-mail to staff.

Ballmer characterized the cuts as the second phase of the plan announced in January. At the time, Microsoft said it would cut 5,000 jobs over an 18-month-period. With the cuts made in January and those announced on Tuesday, Microsoft has now nearly eliminated all those positions.

Here is the text of Ballmer's e-mail, which was seen by CNET News.

From: Steve Ballmer
Sent: Tuesday, May 05, 2009
To: Microsoft - All Employees
Subject: Update: Realigning Resources and Reducing Costs

In January, in response to the global economic downturn, I announced our plan to adjust the company's cost structure through spending reductions and job eliminations. Today, we are implementing the second phase of this plan.

This is difficult news to share. Because our success at Microsoft has always been the direct result of the talent, hard work, and commitment of our people, eliminating positions is hard.

Today's action includes positions in the United States and in a number of countries around the world. In the U.S., affected employees will be notified directly by their managers today. In other countries, local leadership teams will provide more specific information about the impact to their organizations.

With this announcement, we are mostly but not all done with the planned 5,000 job eliminations by June 2010. We are moving quickly to reach this target in response to consistent feedback from our people and business groups that it's important to make decisions and reduce uncertainty for employees as quickly as possible, and so that organizations can concentrate their efforts and resources on strategic objectives.

As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations.

For those of you directly affected by today's announcement, I want to thank you for your contribution to Microsoft and assure you that we will continue to provide support as we did during the previous job eliminations.

And for everyone across the company, I want to reemphasize how much I appreciate the way you have pulled together to help the company respond to this difficult economic environment. There's no doubt that these are very challenging times. But together, we are making the right choices to ensure that we will continue to deliver great products and position ourselves for strong future growth and profitability.

Thank you for your continued hard work, commitment, and focus.

Steve

Microsoft on Tuesday notified more than 3,000 workers that it was eliminating their jobs.

The software maker said in January that it would cut up to 5,000 jobs over the next 18 months. It made 1,400 cuts at the time. With the second wave of notifications on Tuesday, Microsoft has cut nearly all 5,000 jobs already.

Although it didn't announce further layoffs, the fact that the company has already made nearly all the reductions under the January plan means further job actions will have to come under a new round of cuts. In a memo to Microsoft workers, CEO Steve Ballmer left the door open to further action.

"As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations," Ballmer said in the memo, which was seen by CNET News.

While the positions cut in January were more U.S.-centered, the cuts announced Tuesday were split roughly evenly between U.S. and international workers. The cuts were across the company in terms of job type.

"As part of the plan we announced in January to reduce costs and increase efficiencies, today we are eliminating additional positions across several areas of the company," Microsoft said in a public statement confirming the cuts. "While job eliminations are always difficult, we are taking these necessary actions in response to the global economic downturn."

The company still plans to hire 2,000 to 3,000 workers this year in some growing areas of focus, including its online services business.

A photo from Microsoft's 2007 company picnic.

(Credit: Flickr user Marc_Smith )

When Microsoft said on Thursday that it had found more ways to trim expenses, it wasn't kidding.

The software maker notified its workers on Friday that it is canceling its annual summer picnic for Seattle-area workers.

Microsoft spokesman Lou Gellos said that the company made the move as part of its effort to pare its expenses and said workers were notified on Friday because this is around the time of year that the company typically sends out a reminder about the event.

Gellos noted that the event has become a growing logistical challenge as Microsoft's Puget Sound workforce has grown.

"It becomes a bigger and bigger issue every year," he said. The company now has about 41,000 workers in the region.

Gellos did not have an estimate on how much the event costs to produce, or what, if anything, Microsoft might do in its place. "We'll look to investigate ways we can have something to bring folks together, but not in the way we have in the past."

The yearly picnic was one of the few events that brought together the bulk of Microsoft's Puget Sound workforce, which is spread out over many different parts of the region, including Seattle, Bellevue, and Redmond. The company also has a company meeting, typically held in September, that takes place at Safeco Field, the home of the Mariners baseball team.

"We'll still have that because it's very business-oriented," Gellos said.

Microsoft has significantly trimmed its travel budget as well as its large bills for vendors and contractors, as well as announced plans to cut 5,000 workers over the next 18 months.

While leaders at EMC and Intel said they saw signs that the economic woes may have reached bottom, Microsoft's executives said on Thursday that they see continued pressures lasting through at least the rest of 2009.

After reporting its first-ever quarter in which sales dropped from the year-earlier period, Microsoft had more distressing news for investors.

In an earnings call with financial analysts, Microsoft Chief Financial Officer Chris Liddell warned that things continue to look tough in the global economy, describing the conditions as the worst in the company's 30-year history.

Microsoft CFO Chris Liddell: 'We remain more cautious than most about the state of the world economy.'

(Credit: Microsoft)

"We remain more cautious than most about the state of the world economy," Liddell said. "Economic pressures are broad and deep."

His comments are in contrast to statements by executives at EMC and Intel, who held out hope that the worst could be behind them.

Liddell noted that emerging markets, which had been outpacing mature markets for many quarters, actually did worse in the quarter just ended, with demand down as much as 20 percent.

On the PC side, Microsoft noted that the overall single-digit decline in unit shipments was thanks only to Netbooks, which now make up 10 percent of total PC sales. Sales of traditional non-Netbook computers were down 15 percent to 17 percent, compared with a year ago, Liddell said.

One area of strength for Microsoft was the fact that the company's business customers continued to renew long-term licensing deals.

Although Microsoft was hiring even as it laid off workers, the software maker ended the quarter with 800 fewer employees than it had when it started the quarter.

Liddell didn't give a specific forecast for the current quarter.

"We expect the overall spending environment to remain difficult," he said. The company did say it is cutting its expectations for its operating expenses, now saying it may cut up to $2.5 billion from its initial cost forecast, reflecting a further $1 billion in expense reductions. It also is cutting $200 million from its January estimates for capital expenses.

Liddell was also cautious when looking further out. He said that the company expects macroeconomic conditions to remain "challenging" through the rest of the calendar year. For "calendar year 2010, there is some potential for market conditions to improve, but it is clearly too soon to call," Liddell said.

As analysts predicted it might, Microsoft on Thursday reported the company's first ever year-over-year sales decline for the quarter ended March 31.

The software maker said fiscal third-quarter sales totaled $13.65 billion, down 6 percent compared with $14.45 billion in the same quarter a year ago. Its per-share earnings were 33 cents per share, although that included severance and investment impairment charges that reduced earnings by 6 cents per share.

Analysts had been projecting sales of $14.15 billion and per-share earnings of 39 cents, down from 47 cents a year ago, according to Reuters Estimates.

Microsoft had said in January that the crystal ball for the company was cloudy and at the time announced its first companywide layoffs, with plans to chop 5,000 jobs over an 18-month period.

"While market conditions remained weak during the quarter, I was pleased with the organization's ability to offset revenue pressures with the swift implementation of cost-savings initiatives," Microsoft Chief Financial Officer Chris Liddell said in a statement.

The company noted that software sales to large businesses were stable during the quarter, but that weakness in server and PC sales hit its Windows, server and Office units.

Whereas Intel and EMC have been somewhat optimistic that things may have reached bottom last quarter, Microsoft's comments were less hopeful.

"We expect the weakness to continue through at least the next quarter," Liddell said.

The company didn't have much to say on several closely watched topics. The company did not give a specific sales or earnings outlook for the coming quarter, instead only noting what it expects as far as its operating expenses.

As for Windows 7, Microsoft just noted that it "remains on track for a fiscal year 2010 launch." That's even less specific than its usual comment, which is that it should ship within three years from general availability of Windows Vista, meaning by January. The software maker has been pushing to have Windows 7 out in time to be on PCs by this year's holiday season, with recent indications that the company is still aiming for that goal.

Shares closed Thursday at $18.92, up 14 cents. In after-hours trading, investors sent Microsoft shares higher. The stock was trading recently at $19.85, up 93 cents, or nearly 5 percent.

The PowerPoint slides that Microsoft put out to accompany its earnings report offered a few more nuggets. The company saw its online advertising revenue decline 16 percent, causing that unit to fall below what analysts were expecting.

PC unit sales were down 7 percent to 9 percent during the quarter, but the industry's revenue dropped more than that as Netbooks continued to make up a larger slice of sales--a trend that hurts both the PC makers and Microsoft. Microsoft sold 1.7 million Xbox 360s during the quarter, up 30 percent from a year ago and helping push that unit back into the red.

Here's a look at how each of Microsoft's individual units did during the quarter, in terms of both revenue and operating income.

(Credit: Microsoft)

How bad is the tech slump?

Even sales at Microsoft appear to be headed downward. If projections hold, Microsoft on Thursday will report a year-over-year drop in quarterly revenue, a first for the software maker.

The company has come close to flat-lining before, most notably in mid-2000 as the dot-com boom came to an end. Even then, though, it managed to post a slight increase in revenue.

Microsoft is forecast to report quarterly revenue of $14.15 billion for its fiscal third quarter, according to Reuters Estimates, down from $14.45 billion in the same quarter a year earlier. Per-share earnings are pegged to come in at 39 cents, down from 47 cents a year ago.

In addition to paying attention to Microsoft's overall numbers, folks will be closely watching what Microsoft has to say about the PC market. While Intel surprised some last week by suggesting the PC market had hit bottom, AMD's chief executive said Tuesday that such a prediction is premature.

"I don't know how anybody can say we've hit bottom, considering the macroeconomic outlook," CEO Dirk Meyer said during the AMD earnings conference call Tuesday afternoon.

Even when the economy does bottom out, Microsoft has said it is not expecting sales will quickly return to where they were in recent years. CEO Steve Ballmer has repeatedly characterized the current woes as a "reset" of the economy, rather than a temporary dip. When things do pick up, Microsoft said in January, expect slow growth.

There will be other items to watch for during Microsoft's earnings report.

Some think Microsoft might also finally bite the bullet and admit that it is trying to get Windows 7 out this year, as opposed to just by January. The software maker has had a largely positive response to the beta version and is expected to come out with a near-final "release candidate" version in the coming weeks.

In general, new operating systems aren't necessarily the biggest driver of new PC sales, but computer makers are holding out some hope that an early release of Windows 7, combined with continued good reviews, could help the holiday season perhaps be somewhat better than it might otherwise have been. For Microsoft, the release of Windows 7 offers the opportunity to move past Windows Vista, a product that has had a decidedly mixed reputation in the marketplace.

The earnings call will also provide an opportunity to hear not just what Microsoft says about its quarterly results, but also a chance to learn if it is seeing any signs of weakness among customers renewing long-term corporate licensing deals.

Also of note will be what, if anything, Microsoft says about discussions with Yahoo on a search deal. The two sides have reportedly been having some face-to-face talks in recent days and weeks. However, the two sides have done plenty of talking without reaching an accord.

On Yahoo's earnings conference call on Tuesday, CEO Carol Bartz also pointed to search as an important core area for Yahoo, but she wouldn't rule out the possibility of relying on another company's search technology plugged into Yahoo's infrastructure. Microsoft, meanwhile, has been testing the next version of its search product, code-named Kumo.

Further job cuts are also a possibility. One analyst said this week that he anticipates Microsoft will go beyond its previously announced cuts. However, I'd note that Microsoft's January plans called for up to 5,000 jobs to be cut over an 18-month period and it made only about a third of those cuts right away.

Market research firm IDC on Friday said it is cutting 82 workers in the United States, or 5 percent of its worldwide staff "due to the impact of the economic recession."

The Framingham, Mass.-based company said that the cuts include 26 research analysts.

"IDC will continue to have more than 1,000 research analysts worldwide which is more than any other technology market intelligence and advisory company," IDC said in a statement. The firm added that it still has more analysts than it did a year ago, noting that it hired 50 new analysts in the second half of last year.

IDC's move clearly follows cutbacks at many of the technology companies that pay its bills. Other analysis firms have also been cutting staff, including Gartner which said in January that it was cutting 117 workers worldwide.