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Microsoft lays off 5,000 as slump hits PC industry

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26th Jan 2009
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For the first time in its 34-year history, Microsoft announced that it would cut its workforce by 5,000 after announcing disappointing half year results on 22 January. John Stokdyk reports.

The company's chief financial officer Chris Liddell explained that the 8% drop in operating revenues ($5.94bn) and 11% lower profits ($4.17bn) on the previous quarter came about because “economic activity and IT spend slowed beyond our expectations".

Weakness in the PC market and a shift to lower cost netbooks saw an 8% drop in revenues from the company's core client division. Annual licence income grew 15% and strong holiday demand for Xbox 360s helped to soften the blow to its core business, but CEO Steve Ballmer struck a realistic note in the company's results announcement.

“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,” he said. “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.”

Managing the cost base means an immediate cut of 1,400 posts, to be followed by the elimination of 3,600 more jobs in R&D, marketing, sales, finance, legal, HR, and IT over the next 18 months. The cuts will reduce save roughly $1.5bn a year, the company said.

Matt Rosoff, an analyst with the specialist Directions on Microsoft outfit, said the results showed that Windows was nearing the end of its time as the company's cash cow. "It won't drive a surge of PC upgrades," he told Redmond Developer. Rather than responding to the launch of new Windows upgrades, PC sales would be more governed by economic trends, he explained.

Further evidence that the current downturn represents a major generational challenge for the PC industry are the latest sales figures from Gartner. The fourth quarter of 2008 saw the lowest every growth rate for the PC industry, the analyst reported. As well as steeper than expected declines in shipments in the US and Europe, growth rates were also disappointing in Latin America and Asia. But while netbooks generated a surge in sales around Christmas, their lower average prices meant manufacturers experienced their worst ever drop in revenues.

But even the popularity of netbooks and smartphones failed to sustain one of the IT industry's other great indicators - attendance at the annual Consumer Electronics Show in Las Vegas. CES announced that this year 110,000 people made the pilgrimage to Vegas - 20,000 down on last year and more than 40,000 fewer than in 2006.

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