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Microsoft cuts 5,000 jobs - but Ballmer's hiring

Redmond treads water

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Analysis Microsoft just announced the first job cuts in its history. You know things are bad. But how bad?

Thanks to the tanking PC market, Redmond undershot its own expectations for the normally lucrative second-quarter by nearly $1bn. With Windows revenue dipping eight per cent to $4bn, Microsoft blamed consumers for not buying a second or third home PC and businesses for cutting their investments in IT.

The one bright spot: Netbook sales grew 10 per cent. But this too had a downside. Netbooks typically run Window XP, not high-priced copies of Windows Vista. Which hurt Microsoft even further.

And so the company said it will cut 5,000 full-time employees during the next year and a half, with 1,400 going immediately.

The initial reaction was a sharp intake of breath.

It's worth taking a pause, though: Those 5,000 unlucky individuals represent a mere five per cent of an army that's mushroomed to 90,000 during just four years.

Microsoft is trimming the fat and giving itself plenty of time to do it - until the middle of 2010. Redmond is hoping that the recession will be over by the middle of next year, when its costs will be controlled, and that it won't damage the work it has done to build out online search, advertising, and services. Once the recession is past, Microsoft believes it can resume business as usual - minus the rehires.

What we saw Thursday was not a hunkering for a downturn that nobody can predict the end of. We got a small cut in head count plus the standard, cautionary freezes on marketing, travel expenses, and pay rises and the postponement of new offices to control costs this year and next.

But this is Microsoft, a behemoth whose payroll has grown by 50 per cent in four years as it invested billions to aggressively expand into new markets.

Reading between the lines, there seems to be more going on than the company is discussed. And it says management is so invested at an ideological level in its Web 2.0 services, it can't be seen to fail or back down.

The official Microsoft party line is that the job cuts will be made in marketing, sales, finance, legal, human resources, and IT - all the standard staples during such circumstances.

Tellingly, though, there will also be cuts in research and development - an interesting step for a company so invested in R&D. Even in the face of these cuts, chief executive Steve Ballmer recommitted Microsoft to investment in R&D. He flagged up Windows 7, cloud computing, and Windows mobile.

But despite what Ballmer would have you believe, it seems that cuts are coming online.

Commenters on the MiniMicrosoft blog have quoted emails from different Microsoft divisional managers in various parts of the company assuring them that "NO full-time positions...are included in the immediate job eliminations that Steve discussed in today's mail." That mail can be read here.

These alleged emails were allegedly sent by the senior vice president of central marketing, the world-wide vice president of public sector, and the head of Microsoft India, thereby indicating that full-time staff in all these areas are safe - at least for the moment.

MiniMicrosoft is written by an anonymous Microsoft employee who flagged up layoffs at Microsoft last December. It's fair to assume the readers are also from - or connected to - Microsoft, so they know what they're talking about.

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