Microsoft to reduce staff by 5,000 because of netbooks

22 Comments

ms-logoWe have been warning everyone for months that the mass appeal of low-cost netbooks was going to hit the major players hard.  You’ve probably heard today that Microsoft (s msft) plans to lay off 5,000 employees over the next 18 months due to the hard times.  Details are emerging that OEM revenue, that licensing money Microsoft gets for each computer sold, has taken a huge $465 million hit.  This hit is due to the popularity of netbooks that usually have either Linux or cheap Windows XP installed.  From the Microsoft 10-Q filing:

“The decline in OEM revenue reflects an 11 percentage point decrease in the OEM premium mix to 64%, primarily driven by growth of licenses related to sales of netbook PCs, as well as changes in the geographic and product mixes.

We have also been warning that having Windows 7 become the preferred operating system for netbooks would continue to hammer Microsoft’s revenue picture and this warning is now very distinct.  There is no way they can charge a big licensing fee to OEMs for a $300 netbook and it will be interesting to see how this shakes out when Windows 7 is released later this year.

The layoffs are expected to come from Microsoft’s Entertainment and Devices segment affecting Zune, Xbox and Windows Mobile.  This could be a hit in the Windows Mobile evolution depending on how these cuts are leveed.  It’s a sad day for us mobile geeks.

(via All About Microsoft)

22 Comments

nomo

While Microsoft and Intel may be feeling the pinch by supporting the netbook market, both companies could be worse off if they let Linux, Via, and other competitors shape this emerging niche.

By comparison, in the 1970s Japanese auto manufacturers introduced small cars into the US market while the Big Three stayed with the status quo. The market shift toward lower cost, high efficiency automobiles gave rise to Toyota, Honda, and Nissan. During this same period of time the Big Three suffered. As the market shifted again in the 1980s the new entrants focused on quality improvement while, again, the entrenched manufacturers lagged behind. Fast forward to the 2000s to see Honda and Toyota introducing hybrids while the Big Three focused on trucks and SUVs. In 2008 Toyota became the world’s largest automaker and the Big Three were asking for a government bailout.

Microsoft and Intel were incredibly successful during the emergence and growth of the PC industry. Part of that success was because the PC offered a lower cost, workable alternative to the existing solution (i.e. mainframes). The PC industry is maturing now. Both Intel and Microsoft deserve some credit for at least trying to adapt to the changing market rather than simply waiting to see what happens. Whether these companies can successfully navigate through the change is yet to be seen.

Gary

I own five laptops, with a mixture of various versions of Windows, Linux and OS X. The only genuinely good operating system that Microsoft produced in recent years is the 64 bit version of XP, which is virtually impossible to purchase!!!

The reason Linux is cannibalizing XP is because when you boot the Linux environment there’s no messing about with anit-virus updates and the like, it just works.

GoodThings2Life

@Sumocat… well yeah, you definitely have a good point there, lol.

@SteveJ… uhh, the Average Joe buys whatever catches their attention first and their friends tell them is easier.

SteveJ

This is a wake up call for MS. Your days may be numbered. The average Joe don’t like your software no more. MS is an EVIL corporation run humpty dumbty.

Sumocat

Guess I need to adjust my definition of “hard times”. I thought a company that earned a profit of $4B last quarter could afford to not lay off workers during a terrible job market. But hey what’s a few people’s livelihood when you’re looking at the possibility of only $3.9B in profit next quarter?

AlanY

In the academic/student market at least, netbooks are cannibalizing full notebook sales. On the plus side, they’ve helped to blunt some of Apple’s momentum among students.

Brian

You know, I would buy this if I thought that all of the netbook sales we have seen were strait cannibalization of what would have been a full notebook sale. That is not the case though – most netbook users bought these as secondary or tertiary devices way sooner than they would have replaced a full notebook.

HP 2133 Fan with CrunchBang Linux (fast stuff)

Microsoft in the future, needs to retrain these folks to focus on being support company (like Red Hat) and actually have to install and work with the software they produce. Then they can GPL Windows, and survive on their Brand. Shrink Wrap and forced upgrades of versions to generate profits is not the way of the future as the consumer has “done that” and “really does not want to “do that” again.

Another REAL competitor in their space they do not mention is OPEN SOLARIS… note that IAN of “Debian” name sake is working at OpenSolaris… and you can go to the site and download a live cd OR order one and it will be sent to your door.

Why OpenSolaris… one word… ZFS , period. Best file system on the planet earth.

GoodThings2Life

@Oliver, yeah, the headline here is definitely a bit sensationalized, lol. Vista certainly had its role, as did the lack of anything “new” this year on the consumer end.

GoodThings2Life

As Mary Jo Foley pointed out, and I agree completely, this 5,000 number is a whole lot “better” than the expected 8-15,000. Ballmer’s letter and the news recently have pointed out that they have made a LOT of other cuts in order to avoid and minimize the number of people being cut.

Not that I don’t feel bad for those losing their jobs– I DO– but from a business perspective it could have been a whole lot worse.

As for Windows 7… you’re right, they won’t get away with charging $300 for a copy, but that won’t stop them from offering a scaled-back “Netbook” package… which depending on your needs, may not be a bad deal.

Oliver

Somehow I don’t think that the headline is quite justified. Do your really think that the only (or even main) reason for Microsoft to lay off 5,000 people is found in netbooks? By any chance, have you heard about the economic crisis? And the cut-backs in overall IT spending? And the fact that Vista in general has not been as successful as hoped? (my employer hasn’t upgraded any of our Win32 machines, it alone would number likely in the 100,000 Vista licenses… same with Office, by the way).

Also, if the OS/Systems division isn’t making the money they expect, why would they cut in the E&D division? Maybe Zune is a flop? Maybe Win Mobile is becoming rapidly irrelevant?

animatio

it is not only the system itself, but also the whole office business that is touched by this competition. office home & student edition e.g. in switzerland is down to chf 110.- (49.- with a new pc) from this summer about chf 250.-. ms even had to support (behind courtains) the development of an importfilter for openoffice files.

AndyT

I have always thought MS OSes are drastically overpriced and bug-ridden. They don’t spend enough resources on fixing all those bugs in their existing products. Instead they force you to move to new release which they will gladly provide with the help of your friends at Visa, MasterCard and Discover. I wish they would just fix the software I have already paid for. I get an uncomfortable feeling that someone at MS is always tugging at my wallet.

Frank McPherson

I think corporate sales are also a significant amount of Microsoft’s revenue and how many companies that you know upgraded to Vista? OTOH, that could lead to a high demand for Windows 7 because you are not going to see mass numbers of companies switching to OS X.

Woadan

This is just market forces coming to bear on Microsoft.

The alternative to a lower price and being on netbooks with Windows 7 is to keep the price as high as it is and not be on netbooks.

Microsoft had an opportunity to make a lightweight OS for use on UMPCs before netbooks came out. UMPCs did not sell well because their price was high and did not always have the specs to smoothly run Vista.

Any complaints from MS is just sour grapes, and that don’t feed the fox.

Woadan

Martini

This is actually after effects of Vista.

Vista is too bloated for netbooks (and even low end PC’s) so Linux or XP are not only preferred, in many cases it is the only OS that can run on these low spec machines.

Combine this with VERY strong growth in the mac market (mid to high-end PC) and this spells danger for MS in the consumer end of things.

Jake

Well I’m no expert on this sort of stuff but MS don’t charge big OEM’s that much for Windows licenses (maybe about $30-$50 per PC) but I wouldn’t be surprised if they dropped the price to get XP onto Netbooks when they started to take off. That probably explains why they have so many restrictions on the hardware specs for a Netbook’s XP license.

Now when WIndows 7 comes out, I’d expect that they will charge the same for a Netbook license as for any other PC and the OEMs will simply pass this on to the customer. Nobody would complain if a $300 Netbook suddenly costs $330 and comes with the latest and greatest version of Windows.

Anyway, this is all idle speculation on my part.

BTW Scotty, there’s no need to attack foreign workers. They’re people too and have as much right to a job as you do. If a corporation like MS can move their business and money around the world then there’s no good reason why individual workers shouldn’t be able to do the same. Just because times are getting tough doesn’t mean that it’s necessary to resort to racism.

SandraL

I think you misread – the layoffs are mostly expected in R&D, IT, and other “overhead” areas, not Entertainment and Devices.

Scotty

They have a word for companies that can’t adjust to changing business conditions: bankrupt.

I don’t know any other phrase for when a company has to confront the reality that perhaps they’ve been charging too much and their consumers have reacted except: bulls make money, bears make money but hogs get slaughtered.

And I’m wondering how many H1-B workers got cut with this action? Kind of hard to explain how you’re continuing to employ alien workers that are supposedly on the payroll because you couldn’t find enough skilled local labor… when you’re making local labor available by laying it off.

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