Awaiting Microsoft's cuts
The uncertainty surrounding Microsoft's cost-cutting plan is likely to last only another day, until the software maker announces earnings Thursday.
That's when many people expect the company will detail its plans, which will likely include the company's first-ever companywide layoffs.
In the absence of hard facts, the guessing game goes on. I was fond of Todd Bishop's post at TechFlash on "Five things we really wouldn't miss" if Microsoft cut them.
Zune hardware tops the list, which also includes Microsoft's little-known YouTube rival Soapbox, and its search business. Although it seems very unlikely the software maker would jettison the latter, Bishop argues it could do a different kind of partnership with Yahoo--propping up Yahoo's search business and using the money not spent on Microsoft's own R&D to improve Windows.
I suspect Microsoft will make some cuts, but probably not any of those things, with the possible exception of Soapbox. I'd echo former CNET colleague Joris Evers, who mentioned via Twitter that Windows Home Server may be a good candidate for the ax.
So far, the only big thing the company has abandoned is its Windows Live OneCare antivirus service. Even there, it is moving forward with "Morro," a new, free product for combating malicious code.
Microsoft is clearly trying to do what it can to minimize the number of full-time blue badges it has to let go. It has already slowed hiring, scaled back the number of vendors and contractors it uses, and is making moves to lessen its real estate costs.
That said, it's unlikely that Microsoft will be able to maneuver this economy without painful cuts. If you were CEO Steve Ballmer, where would you cut?
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina. 
That would go a long way towards fixing things.
The new CEO should jettison everything not part of their core, most of them barely make money and some never will: xbox, zune, search, hotmail, etc. Either dump or make .net truly cross platform. Then spend a few years fixing Windows and Office, give users a real reason to want them, not through lock-in.
Willing customers are always happier and that translates into more profits.
You just don't understand their hiring and retention practices. The supplement for demand by hiring temps and are very conservative about hiring full time employees. They also have a very high bar for determining who gets hired. Negative trends would have to last a long time before they cut....in much the same way positive trends have to go on for a long time before they go on a hiring frenzy.
I already said "I told you so" about the Jan 15th layoffs. I'll see you again in a few days.
Ina: If I'm right again maybe you need to start shutting it.
Have you seen many of the hires in the last few years? 1 out of 3 is probably of the quality of MS employees of the previous 10 year.
You say its hard to get in... let me tell you its harder to fire a mistaken hire! Obviously this comment was either from someone who's working there basically spending the majority of their time planning their workouts at the proclub or someone who doesn't have a real clue.
You got to tell me where they are hiding - cause I have so many bozobits turned on that I am running out of memory! Everytime I walk into a meeting, I have to turn it on for 50% of the people. Dead-weight is holding the company back. I bet lay-offs will actually make many of us more productive. At least those 'high-bar' people that are still around.
My division is crowded with rockstar performers and it's my assumption that the same is going on elsewhere. Someguy, msemp, if you don't see the same thing and you're not doing anything about it then get out and don't let the door hit you. That attitude belongs elsewhere.
They may still lay off some people. Having $1.7 billion dollars in cash flow deficit is a big, and the estimated $2.1 billion they received from the Comcast stock sale won't cover their Q3 '08 losses plus whatever losses they probably suffered this quarter. I can assume they will continue to show cash flow losses because the economy is slowed for everyone, including Microsoft. They will very likely have to make cuts somewhere. If not now, then the next quarter, unless they begin digging into their $20 billion cash reserves to keep everything afloat, which would be a bad idea when you have unprofitable divisions and projects that can be cut out.
Which projects and divisions should go? Todd Bishop guessed very well. I would also add Home Server, and perhaps other pushes outside of business applications. Things like Share Point and Dynamics NAV, Dynamics PT, Hyper-V, and so on they should keep and pursue, since these are profitable in both the near and long-term for them. Divisions and projects which remain close to their core business and are profitable, Microsoft should retain. Things which are neither, like MSN or Zune, should be reduced or removed completely. Bishop is right, search is a lost cause, and is owned by Google, with Yahoo removing the rest of the oxygen from that market.
there is a time for reaching out to new horizons, and a time to reinforce your core profit centers. This is the time to keep the money engines running as well as they can, and not the time for them to continue polishing the tire-spinners.
Then all products will have to be killed in their first year of release. That was a dumb comment, congratulations!
They continually have issues with their Apple envy-and the PMX division should be dissolved as it's incompetent and showing no progress. The Zune is a failure on many counts. Windows Mobile is too constrained by a reliance on licensing to OEMS-thus the hardware is typically dull and poorly integrated with software capabilities. Essentially, MSFT keeps deserting it's strengths(integrated business productivity) to chase a poor margin consumer rivalry with Apple. The XBOX is only a success because it's a cloud-based social network-which is a consumer rehash of the business model. Pay attention and get real, Balmer.
Also, as far as cuts, they could review their dreadful product management system. They have too much of this cruft and it drags the company into mediocrity. MSFT is too political, with near-zero "build" capability, zero innovation and zero commitment to excellence. Get real, Balmer.
After that Microsof will quietly cut back on redundancy and consolidate where it can and ask its people to take on more roles.
Finally, none of the core competencies like Windows, Office, Infrastructure Servers, Unified Communications, Search will not be touched but advertising might. Xbox is a clear money maker and will continue to recieve investment, but new consoles won't debut until 2011 as Sony implodes and PS3 lags. Zune, is in the same situation as Xbox was a couple of years ago, don't expect this to go, but be extended to Windows Mobile, which will also survive.
This is going to be the catalyst for even more rapid convergene of technology and with that the convergence of job roles.
Look for MSN to take a big hit. There will also be some natural attrition across the country. There will probably be some H1-B visa sponsorships that will be axed as the pool of talent in the US is flooded with qualified workers.
Microsoft is not going to slow down R&D at all. This company has no debt, and for the comment above that states the company was operating at a negative cash flow, not sure what financials you are looking at, but that is dead wrong. Microsoft takes a very conservative approach to reporting financials to the SEC. When you factor the investments out of that data, there is no negativity. In fact, the SEC asked for such a revision.
My guess is many of the cuts will happen abroad, especially in the European,Middle East, and Asia subsidiaries. The US sub will take some hits in Redmond too where there is lots of fat. But make no mistake, this is a response more to shareholder fear and less on profitability. I expect there will be a porportional cut in expenses to revenue expectations as this thing plays out to maintain an even keel and hopefully get rid of some dead weight.
Luckily Microsoft has several strong revenue streams unlike many of the other tech companies that are getting hit hard. Don't count Microsoft out, of all the tech companies this one is still a best buy and will make it thru. I wouldn't be surprised if there were no cuts announced.
Read this - http://finance.google.com/finance?fstype=ci&q=NASDAQ:MSFT
Yahoo Finance summary page only shows totals. You have to look deeper to find out that yes Microsoft is losing money, which you can see from Yahoo here: http://finance.yahoo.com/q/cf?s=MSFT
The majority of this loss in detail is due to "Sale Purchase of Stock", which I believe is the $40 billion buyback program they began last year.It is curious that they also borrowed $1.9 billion from someone during the last reported quarter. All of these have nothing to do with investment data, which is counted as a plus of $595 million dollars, and helps offset the negative flow a little.
No matter what angle the financial sheet is viewed from, Microsoft is losing money.
While microsoft may have been cash-flow negative in some quarters, it is because they are returning cash to share holders via special dividends or share repurchasing. Their cash-flow from operations (ie "the business") is very positive,
Microsoft is most certainly not "losing money". Although, it is popular to think that way right now.
Meanwhile, Microsoft's competitors are gaining. IBM posted strong results earlier this week. Apple just today posted strong results. This gives both more money and income for more R&D, for more experimentation in new product lines, and for improvements to their existing product lines. It also allows them to attract the best employees. In contrast, we mull over whether or not Microsoft will be forced to lay off people, and if so how badly.
In consolation, it appears that Intel is sharing some of Microsoft's woes. I wonder if this is because Microsoft and Intel suffer from the same general problems internally, or even externally, something unique to their common points of market surface.
You're confusing cash flow with profit and loss. I recommend reading "How to Use Financial Statements" by Bandler. Or take a basic accounting class at the community college.
Microsoft is not "losing" money by buying back shares. While they may spend more money on share repurchases than their quarterly cash flows bring in, this money isn't "lost". The shares purchased are retired. The net result is each remaining share has claim on a larger percentage of the company "pie", and the size of the company "pie" is reduced by the amount spent repurchasing shares.
This has nothing to do with the "profit & loss" of the company. Microsoft is earning something like 4B a quarter in profits.
Moreover, while a company is authorized by their board of directors to repurchase shares, they are by no means obligated to do so.
Having a low stock isn't otherwise bad for them...they are still full of cash and don't need to raise capital.
If the company has adequate cash flow from operations (which it does) and little debt, it makes a lot of sense to do a stock re-purchase plan as this actually helps the balance sheet in the long run.
And to those who say the Zune division will be axed....keep dreaming. Several executives at Microsoft have made it very clear that the Zune service, at least, will live on for the forseeable future. I have a Zune and I can say Microsoft is continually improving the software and experience behind Zune and I prefer it over iTunes now.
Sorry, just teasing - I couldn't resist, but since I have never ever seen anyone using a Zune (if I have, they don't stand out from other mp3 players like the iPod does, so I have not recognized them as Zunes) while I see several people a day using iPods it does seem that not many of them are sold.
With that kind of invisibility in the real world, Microsoft needs to do something radical to their Zune division even if they don't axe it.
- by Vegaman_Dan January 21, 2009 4:51 PM PST
- When the economy is poor, strong companies use that time to invest in resources and products to be ready when the economy improves. Poor companies panic and typically aren't around when that shift in the economy happens.
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(30 Comments)With all the spare cash MSFT has, I don't see that they will lay off anyone really, but they may use this time to trim down underperforming areas and products while putting more resources behind other technologies that they wish to develop more.
I expect the economy turnaround to be not too far off- if you look at past history, it tends to slump just before an election for a year, then once the new president has been in office long enough to establish their method of operation, the economy generally starts to rebound. That has happened with Bush Sr, Clinton, Bush Jr, and I expect now with Obama.
But I have to agree with author- right now everyone is only playing a guessing game with no real evidence to back anything up at this point.