Microsoft expected to cut jobs as profit weakens

NEW YORK/BOSTON (Reuters) - Microsoft Corp is expected to post a quarterly profit that misses its own target and announce thousands of job cuts this week as the global economic slump hurts even the technology industry’s biggest players.

A sign hangs at the Microsoft booth at the annual Consumer Electronics Show (CES) in Las Vegas, Nevada January 9, 2009. REUTERS/Rick Wilking

When the leading software maker reports fiscal second quarter results on Thursday, investors are likely to press for comments on its outlook and on Yahoo Inc, whose search business has been the object of Microsoft’s desires.

The report comes against a backdrop of a wounded global economy that has stifled demand for everything from personal computers to business software and video games, all markets in which Microsoft is a significant player.

“All eyes are on the forecast,” said Jefferies & Co analyst Katherine Egbert. “Expectations for the guidance are pretty low.”

Analysts on average put Microsoft’s profit at 49 cents a share for the quarter ended December 31, which includes a U.S. holiday shopping season that has been called the worst in at least four decades. The Redmond, Washington-based company had forecast a per-share profit of 51 cents to 53 cents for the quarter.

Wall Street is looking for quarterly revenue of $17.1 billion, according to Reuters Estimates, also short of Microsoft’s own target of $17.3 billion to $17.8 billion.

Egbert says she expects Microsoft to report sales of its Windows software for PCs and laptops to drop 3 percent from a year earlier, making it the toughest quarter in eight years. She blames the shortfall on weak consumer sales, noting that businesses have yet to cut back as much as retail shoppers.

Wall Street’s expectations for Microsoft’s performance for its fiscal year ending in June 2009 have declined since it last reported results three months ago.

Analyst forecasts for full-year net income have dropped 10 percent to $17.77 billion, while revenue projections are down 4.4 percent at $63.68 billion, according to Reuters Estimates.


With an eye on reducing costs, Microsoft is widely expected to announce that it will cut jobs, following similar moves by other tech firms, including AT&T Inc, Dell Inc, Motorola Inc and Advance Micro Devices Inc.

“Checks indicate that Microsoft is likely to engage in headcount reductions to the tune of 6,000 to 8,000 employees or 6 percent to 8 percent of its 95,000 workforce,” said McAdams Wright Ragen analyst Sid Parakh. “Our checks also revealed some speculation over the potential for a second round of cuts in some groups sometime later in the year.”

Other analysts suggest the cost reductions may occur in the next few weeks and could also include more targeted cutbacks and attrition, rather than the big number of layoffs that some have speculated.

Microsoft has declined to comment on any likelihood of job cuts. Its shares have dropped 41 percent over the past year, while shares in another technology bellwether, IBM, have lost 16 percent. The S&P 500 Index has dropped 38 percent during the same period.

Analysts are also expected to pepper Chief Executive Steve Ballmer with questions about the status of the company’s relationship with Yahoo, now that the Internet company has named Carol Bartz as its new CEO.

Bartz told employees earlier this week that she had a phone conversation with Ballmer, who has repeatedly said he remains interested in pursuing a search partnership with Yahoo but does not intend to renew an offer for the whole company.

Microsoft made a bid for Yahoo last year, but walked away after they disagreed on price. Investors have been skeptical about whether the software company can win online advertising revenue away from Google and Yahoo, which are both stronger than Microsoft in the Internet search market.

Editing by Phil Berlowitz