The truth about Microsoft and its lay-offs
Despite Microsoft having profited 2% more in the last trimester in comparison to this time last year, its profit and tax results were lower than what was anticipated; therefore, the company announced cut backs and lay-offs. The bad results and Microsoft lay-offs has been feeding the media in the past few days and, as expected, several websites have published a lot of non-sense about it.
This is more realistic information of what is happening at Microsoft:
1. Due to the recession, the sales of PC’s with pre-installed Windows version has dramatically dropped in the last months. Since a good portion of Microsoft profits comes from those sales, the consequences are obvious: fewer computers sold mean less OEM licenses sold, resulting less profit for this particular department.
Some journalists argue that the Windows Vista is to blame for the decrease of revenue; however, it makes no sense at all, otherwise this would have happened right after its launch in 2007, and not just now in 2009. The decrease in sales of desktops and notebooks is a result of today’s economy, not of the Windows version used in them. Another proof is the 19% increase of retail sales of Windows Vista in comparison to the prior trimester.
2. The tax results for Microsoft were below expectations because in the last trimester the company profited 900 million dollars less than what it had foreseen. It may seem like a lot but in fact, it isn’t because in the last tax year Microsoft profited more than 60 billion dollars. The 900 million represent only 1.5% of total profit, and numerically speaking, it is equivalent to the paralyzing of profit for only five out of the 365 days of the year.
What worried the market was not the numerical amount itself, but the fact that Microsoft had a decrease in profit, something never seen before in its 34 years of existence. Evidently during recession, all companies will sell less and even Microsoft is not immune to that. The decrease in sales and profit will happen to practically all companies this year. Those not yet affected by the recession will still perish in the months to come.
3. Like any other company that needs to cut costs, Microsoft lowered the budget for marketing; it froze salaries and implemented measures to save 20% on travel costs of its employees and salesmen. Such measures aim to save 1.5 billion dollars this year, but still, clients and professional who work with Microsoft products won’t feel any difference (much less here in Brazil).
Other cut backs this year are not of public knowledge, such as the postponing of the construction of a 500 million dollar datacenter over 42 acres in Des Moines, Iowa (despite the fact that the construction of datacenters in Chicago and Dublin, Ireland will continue). By the way, not only Microsoft postponed the construction of the datacenter but last year, so did Google in Oklahoma.
4. Out of Microsoft’s 91 thousand employees, only 14 hundred were laid-off. Non from the Windows department. The two most affected departments were the Flight-Simulator (closing the Aces Game Studio, part of Microsoft Game Studio (MGS), department responsible for such game) and the Entertainment and Peripherals (Windows Mobile, XBOX, and Zune) which had its staff reduced.
No product or service will be affected, because the lay-offs aim to shrink teams. In the case of the Flight-Simulator it will still be developed by other teams within MGS.
5. Microsoft intends to let go 36 hundred more employees in the next 18 months (around 200 employees per month), and most are third party employees. That is not a lot for a company with more than 90 thousand employees. At the same time, a few thousand more employees will be hired in new areas such as the research department.
It is important to remember that for years Microsoft has hired (in average) seven thousand new employees each year and it will still hire; however, in a lesser quantity.
6. Windows 7 will be launched this year, and next year Office 14. When new versions of these products are released into the market there is a considerable increase of revenue and profit. Windows 7 will be particularly profitable to Microsoft for three reasons:
1) Many companies will migrate from the XP to Windows 7 instead of the Vista. The main factors for that are the requirements, drivers and performance.
Requirements: because Windows 7 has the same hardware requirements as Windows Vista, there won’t be a need for hardware upgrade anymore. This was necessary in 2006 when the Vista was launched and that was one of the main complaints about it.
Drivers: all of the Vista peripherals will work on Windows 7. With that, problems with incompatibility of peripherals and the operational system are avoided and practically all new peripherals from the last years will work on with Windows 7.
Performance: Microsoft tended to market complaints and it is developing the Windows 7 to be much faster than the Vista and the XP. It is on the right track according to the website ZDNET which has recently done 46 tests of performance, comparing it to XP versus Vista versus Windows 7. Windows 7 excelled in 42n of these tests. Read more about it here.
2) Millions of netbooks are being sold throughout the world, but Microsoft does not profit much from that.
Since many people are buying netbooks (small notebooks with pre-installed Windows XP) instead of notebooks (the traditional models with pre-installed Vista), the profit is lower because the license for the XP is cheaper than the license for the Vista.
When Windows 7 is launched it will be the end of that scenario because from then on, all netbooks will use Windows 7 as its operational system (there will be a specific version of it for netbooks) generating more profit for Microsoft and more benefits for its users.
3) The ordinary Windows XP users will migrate to Windows 7 since today most of them don’t see any advantage to migrating to the Vista when they also complain it to be too slow. It will be different with Windows 7 because such users will be pleased in having an operational system as of or even faster than the XP plus that contains all the benefits of the Vista (better security, more applications and more compatibility).
Note that Windows XP was released in 2001 so within the next two years it will have been in the market for one whole decade (!!), suffering problems with support, compatibility with more recent applications and peripheral drivers, naturally for being such an old operational system.
Obs.: many people love the Vista and would never return to the XP, but critics of Windows ( any of its versions) don’t appreciate anything. But also for them the reviews on the Windows 7 have been excellent. Even the founder of Ubuntu and many Mac users have praised Windows 7, The Wall Street Journal published that “Windows 7 will make Vista bite the dust “and the New York Times said that users who hate Vista will probably like Windows 7. Not bad for an operational system which is in its initial testing phase and has not even been optimized.
5. The Microsoft server department is doing very and it grew 15% in the last three months while companies keep on purchasing and implementing Windows Server 2008, Hyper-V, System Center and SharePoint. An important detail is that the growth of Microsoft server department has been 10% superior for 10 years and it has not changed despite the economy.
6. The X-BOX is also doing very well: it had a 3% growth and 6 million consoles were sold in the last trimester (more than twice the Playstation sales). Besides, the total number of XBOX 360 consoles will exceed 30 million within the next few weeks. There are 17 million contributing users of the XBOX Live.
This year two new versions of Halo 3 will be released.
Halo 3 is one of Microsoft’s most profitable games: on the day of its release it generated 170 million dollars, and within the next 12 days 3.3 million copies had already been sold. Sales for the XBOX 30 doubled in the following months.
There are more than one billion Windows users throughout the whole world and this number will keep on growing. Right now, wherever you may be while reading this article (at home or at work), there will be certainly another Windows computer within 54 yards (164 feet) from where you are. That will never change.
Even if in 2009 Microsoft might have a lower growth then what it was anticipated last year (which is expected from any company in a market within recession) and it profits less than 60 billion dollars, it will still be very far from the exaggeration and pessimism of the “specialized media” that previews a catastrophe at Microsoft, its end, “the fall of an empire”, the end of Windows and a bunch of more balony…
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Aurélio "Baboo" Minerbo
www.baboo.com.br
BABOO/MSN Tecnologia
MVP Windows Desktop Experience
Translation: Isabella Girardello
