Growth5 Blog

Saturday, May 9, 2009

Microsoft Layoffs & Sales Decline... Windows 7 Better Deliver

It's been a tough couple weeks for Microsoft. For the first time since going public in 1986, year-over-year quarterly revenues have declined -- probably the only way $13.65 billion in quarterly revenues could be seen as anything but fantastic. Year-over-year quarterly net income declined 32% to $2.98 billion.

Then the announcement came that Microsoft had another round of layoffs this week as they push to layoff a total of 5,000 employees worldwide by the end of the year.

Three or so thoughts:

1. Windows & Office will not sustain Microsoft's profitability forever. This is something Google has also known about their main source of revenue --search -- for awhile. Yet, even with cash of $17 billion for Google and $25 billion for Microsoft they have struggled to come up with ways to diversify away from their main products.

Perhaps this is why Microsoft has sought Yahoo so vehemently. When they saw Google flat line at about 63% search market share, they saw themselves and realized they could capture growth by purchasing Yahoo and their search advancement.

2. Windows 7 better deliver for Microsoft or they can expect further trouble. After spending billions online in the last decade trying to keep pace with Google (see #2 above) and failing miserably, they are back depending on what got them where they are in the first place, operating software. Only this time they are relying on three terms that you usually don't hear to describe Windows: "simplicity, reliability and speed." Good luck with that. Simple and faster, maybe. Reliable? I doubt it.

Perhaps Windows 7 can bridge the gap until Ray Ozzie figures out how to make Microsoft money with cloud computing.

3. When announcing their latest round of layoffs, Microsoft said they hoped to create another 2,000 to 3,000 jobs this year in "high-growth" areas. Why don't they take some of there $25 billion or the $290 million they are writing off as layoff costs and train their current staff to be effective in these "high growth" areas. You made $3 billion last quarter. Yes, the wheels may be slowing down, but they haven't fallen off. We get that having the right 90,000 employees to get where you need to be is a challenge but you must have hired these folks because they added value to your firm (about $3 billion last quarter), I bet they could be valuable doing something else for you.

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