Microsoft to shed 5,000 jobs

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Microsoft on Thursday embarked on the first company-wide job cuts in its 34-year history as it announced plans to cut up to 5,000 workers over the next 18 months.

The news came as the world’s biggest software company brought forward its second-quarter earnings announcement, revealing the extent of the damage caused by a slump in PC sales and growing consumer demand for “netbooks”, low-cost laptops which generate lower software revenues.

Steve Ballmer, chief executive, said in a statement that Microsoft was “not immune to the effects of the economy” but indicated that there would be no change in strategy.

He added: “We will continue to manage expenses and invest in long term opportunities… and will emerge an even stronger industry leader than we are today.”

The company-wide job cuts, out of a total of 96,000, will begin with 1,400 job losses on Thursday, Microsoft said.

The company came through the tech industry bust of 2001-02 with little damage, thanks to the continued growth of the PC business worldwide, and had been forced to make job cuts in the past only as a result of limited reorganisations of parts of its business, or to integrate acquisitions.

Microsoft shares closed down 11.71 per cent at $17.11 on Thursday.

In an email to employees, Mr Ballmer said Microsoft was taking a range of other measures to reduce its expenses, including reducing travel budgets by 20 per cent, eliminating merit-based pay increases this year and scaling back plans to expand its headquarters campus in Redmond, Washington state.

Microsoft said its revenues in the second quarter grew just 2 per cent from a year before, to $16.6bn, lower than the $17.1bn that Wall Street had been expecting. Earnings per share fell 6 per cent to 47 cents, compared with expectations of 49 cents.

The shortfall reflected the sharp fall in global demand for PCs at the end of last year, as corporations cut back on IT spending and the normal jump in holiday sales to consumers failed to materialise.

Microsoft said the results also reflected the growing demand for “netbooks”, many of which come with the earlier Windows XP rather than the current Vista operating system, or even no Microsoft software at all.

As a result, revenues from the company’s client division, which handles Windows PC sales, fell 8 per cent in the quarter.

The figures were a stark contrast to results from Apple the day before, which showed continued strong sales of MacBook laptops despite the economic slump. Apple shares were up 7 per cent at $89.14 on Thursday.

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