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Consumer PC spending slowdown hits Microsoft

Computer software giant slashes jobs, blames slump

Microsoft Windows logo

Computer software giant and Windows operating system maker Microsoft has announced 5,000 jobs will go over the next 18 months as it reported an 11% drop in second-quarter profit.

The company said the moves were driven by deteriorating global economic conditions and lower sales, resulting from weakness in the PC market and a shift to cheaper notebook models.

It said profit slipped to 4.17 billion dollars from last year’s $4.71 billion.

Microsoft job cuts

Microsoft said the job cuts will reduce operating costs by 1.5 billion dollars as it prepares for lower revenue and earnings in the second half of the year.

The redundancies appear to be a first for Microsoft, which was founded in 1975, aside from relatively limited staff cuts it made after acquiring companies.

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

Consumer PC spending slowdown

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.

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In a memo to employees, chief executive Steve 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.’

The job cuts, starting with 1,400 today, will affect workers in research and development, marketing, sales, finance, legal and corporate affairs, human resources and information technology, and mostly in Redmond, Washington, where the company is based.

Windows Vista

Mr Ballmer also said there would be changes in departments that handle support, consulting, operations, billing, manufacturing, and data centre operations.

Microsoft will not stop hiring entirely. Mr Ballmer said the company will add new jobs to support ‘key investment areas’ over the next 18 months, so the total number of employees will drop by 2,000 to 3,000. Microsoft employs 94,000 people overall.

Microsoft makes most of its profits on sales of the Windows operating system and its Office package of software, which includes programs such as Word, PowerPoint and Excel.

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© Press Association 2009

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