Microsoft succumbs to slowdown

Microsoft Corp. plans to slash thousands of jobs for the first time in its 33-year history as it attempts to cut costs in the face of the weakening global economy.

The world's largest software company said yesterday that it will trim 5,000 jobs - nearly five per cent of its 94,000-strong global work force - over the next 18 months, including some of its 900 Canadian employees.

Coupled with the company's announcement that second-quarter profit dropped 11 per cent - falling short of Wall Street expectations and sending the company's shares down nearly 12 per cent - the numbers paint an increasingly bleak picture for a sector that until recently had avoided the worst of the economic downturn.

Although Microsoft remains the envy of the technology world with nearly $20.7-billion (U.S.) in cash reserves and the ability to generate more than $1-billion a month in cash flow, the job cuts signal that even the world's most powerful technology companies cannot hope to escape the undertow of the economic slowdown.

"We're certainly in the midst of a once-in-a-lifetime set of economic conditions," Microsoft chief executive officer Steve Ballmer said during a conference call with investors to discuss the company's quarterly financial results.

"The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage in economy."

Not counting staff reductions as the result of mergers and acquisitions, the layoffs - 1,400 of which were announced yesterday - will be the first for Microsoft since its inception in 1975.

Microsoft joins the ranks of other tech bellwethers sporting black eyes as a result of a softening consumer market, including chip maker Intel Corp. and consumer electronics giant Sony Corp., both of which recently unveiled plans to trim thousands of jobs as consumers cut their technology spending.

A spokesman for Microsoft in Canada declined to answer specific questions about how the layoffs would affect the company's employees on this side of the border.

"The current economic climate requires that we improve our efficiency as an organization and rebalance resources against our priorities," he said in a statement. "While the current global economic environment will continue to be challenging, we believe in the strength of our business today, our ability to continue delivering value to our Canadian customers and our approach to long-term growth."

The holiday quarter of 2008 was the worst the PC market had seen since 2002, with computer shipments declining about one half of 1 per cent, according to IDC, a technology research group.

Making matters worse, the one type of PC consumers have warmed to in tight times - the low-cost, low-power "netbook" - actually cut further into Microsoft's earnings. The tiny portable computers run on Windows XP, which is older and less profitable for Microsoft than Windows Vista.

In a memo to employees, Mr. Ballmer acknowledged that Microsoft is "not immune to the effects of the economy. Consumers and businesses have reined in spending, which is affecting PC shipments and IT [information technology] expenditures."

Mr. Ballmer said Microsoft cut operating expenses by $600-million in the quarter, but that it wasn't enough.

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