Microsoft Cuts 3,000 Jobs, Mulls Additional Layoffs

The software maker is facing reduced demand for Windows and new competition on several fronts.
Microsoft on Tuesday said it laid off 3,000 employees from its U.S. and worldwide locations as part of a previously announced cost-cutting initiative.

"This is difficult news to share," Microsoft CEO Steve Ballmer said in an e-mail to employees. "Because our success at Microsoft has always been the direct result of the talent, hard work, and commitment of our people, eliminating positions is hard."

Microsoft in January said it planned to trim a total of 5,000 jobs from its workforce. Ballmer said Tuesday's action means the company has "mostly" reached that objective.

"We are moving quickly to reach this target in response to consistent feedback from our people and business groups that it's important to make decisions and reduce uncertainty for employees as quickly as possible," said Ballmer.

Ballmer added that Microsoft could cut more than the originally announced 5,000 jobs if economic conditions worsen or fail to improve. "As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job cuts," Ballmer said.

Faced with a slumping economy, new sources of competition, and a staple product that turned out to be a dud, Microsoft last month reported one of the worst financial quarters in its history.

The company said total revenue for its third fiscal quarter fell 6% year over year, to $13.6 billion, while net income, including $710 million in restructuring and investment charges, sank 32% to $3 billion. Earnings per share came in at 33 cents, compared with 47 cents in the year prior.

The company is encountering headwinds on a number of fronts.

Vista, the current edition of the company's core Windows operating system, has been met with jeers by corporate and home computer users alike. Surveys show that only a handful of large enterprises have upgraded their PCs from the older Windows XP OS to Vista. Complaints range from Vista's hardware requirements to its intrusive security measures and incompatibility with older software.

Microsoft also is facing competition from open source developers and a resurgent Apple, as well as from Google's efforts to expand beyond search into operating systems and applications.

Partly as a result, Microsoft's client division, which hosts Windows, posted a 16% drop in sales, to $3.4 billion, in the most recent quarter. Microsoft is hoping that Vista's successor, Windows 7, will reverse the tide. Windows 7 is expected to be released later this year or early next.

On Tuesday, the software maker made the Release Candidate publicly available for download for the first time.

InformationWeek has published an in-depth report on Windows 7. Download the report here (registration required).

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