SEATTLE - Microsoft Corp. will make the first mass layoffs in its 34-year history, cutting 5,000 jobs as demand for personal computers falls and one of the world's richest companies falls victim to recession.
The company announced the cuts yesterday as it reported an 11 percent drop in second-quarter profit, which fell short of Wall Street's expectations. Microsoft shares plunged nearly 12 percent.
"We're certainly in the midst of a once-in-a-lifetime set of economic conditions," chief executive Steve Ballmer said during a conference call. With less access to credit, businesses and consumers are spending less and stretching the life span of their existing computers.
The biggest names in the technology sector have been no stranger to layoffs lately. Giants such as chip maker Intel Corp. and Google Inc. are among the companies that have pulled back on jobs.
At Microsoft, the cuts appeared to reflect uncertainty about when times will get better. The company said it could not issue a forecast for earnings and profits for the rest of the year.
The software maker was already facing tough problems, among them its inability to take a significant share of the lucrative Web search advertising market from leader Google Inc. It tried to fix this by buying Yahoo Inc. and pouring money into its own technology, all the while relying on Office programs such as Word and Excel, and on Windows to keep bringing home huge profits. Now, with the recession pinching software earnings, Microsoft's problems seem even harder to fix.
Microsoft, which has $20.7 billion in cash on hand, said its business prospects were hurt by the deteriorating global economy and lower revenue from software for PCs. The holiday quarter of 2008 was the worst for the PC market since 2002, with computer shipments declining about 0.5 percent, 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" - 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.
The layoffs, starting with 1,400 yesterday, will affect workers in research and development, marketing, sales, finance, legal and corporate affairs, human resources and information technology, and mostly in Redmond, Wash., where the company is based. The cuts are expected to touch virtually every division and include the computer programmers who write code for existing and future applications.
The software maker won't stop hiring entirely. During the conference call, Ballmer said the company will add jobs in the next 18 months to support key areas, including Web search, so the total number of employees will drop by 2,000 to 3,000. Microsoft employs 94,000 people overall.
Still, its operating costs remain too high for the current economy, leaving plenty of room for cuts, said David Rudow, senior equity analyst for Thrivent Asset Management.