Is Microsoft Planning Its First-Ever Layoffs?

With the economy in the tank and other major firms planning massive cutbacks, rumors have been swirling for several weeks that Microsoft plans big layoffs of its own to be announced on or about Jan. 15.

How big? As much as 10 to 17 percent of the company’s employees, if you believe the buzz.

If true, the cuts would be the first “official” layoffs in Microsoft’s history — blunting a point that the company has always pointed to as a matter of pride.

Despite one Web site’s claims that the layoffs are now “fact,” however, no one seems to be able to substantiate the rumors. That may make for a lot of Microsoft employees lying awake at night after tonight’s champagne wears off.

Microsoft (NASDAQ: MSFT) officials were mum on the rumors.

“Regarding any potential layoffs, Microsoft does not comment on rumors or speculation,” a company spokesperson said in an e-mail to InternetNews.com.

Yet this week, blog site Fudzilla proclaimed that the rumors are true.

“The rumor that Microsoft was set to lay off people on January 15th, 2009 is no longer a rumor but a fact,” a Fudzilla post said on Dec. 30. “Staff at Microsoft have been informed that the company is readying major layoffs to its worldwide operations and it’s not a small cut, either,” the post continued.

One problem is that, at this point, there is no way to verify whether layoffs will be announced or not. Neither does anyone seem to have any support so far for the rumors that cuts at Microsoft could range between 10 percent and 17 percent of the software titan’s titanic work force, which currently is slightly more than 91,000 people worldwide, according to Microsoft’s site. Fudzilla said there will be as many as 15,000 pink slips handed out, but didn’t quote anyone — not even anonymously — providing any verification.

And, if staff had been informed on a companywide basis as the blog suggests, securities laws would typically require Microsoft to publicly disclose that information within 24 hours as a material fact that could affect the company’s stock price.

For that reason, Rob Enderle, an industry analyst with the Enderle Group, doubts that layoffs have been communicated to employees en masse — at least, not yet.

Layoffs “wouldn’t surprise me,” Enderle told InternetNews.com. “But I haven’t heard anything about it.”

Good timing?

To some observers, the week of Jan. 15 might seem like a good time to announce layoffs. The date falls between next week’s Consumer Electronics Show, where CEO Steve Ballmer is expected to announce the beginning of the Windows 7 public beta, and Microsoft’s quarterly earnings call with analysts on Jan. 22.

[cob:Special_Report]”Around the time of the earnings [call] is when you want to make an announcement like that,” Enderle told InternetNews.com. He added that Microsoft would not be smart to reveal worker cuts before the Windows 7 public beta starts, because that would take some of the shine off the pending replacement for Windows Vista.

Two former senior Microsoft development managers, who are still well plugged-in at the firm, said they had not heard anything from inside the company that might point to massive layoffs, but could not rule it out either.

They both suggested, though, that Microsoft is likely to not call whatever it does a “layoff.”

Instead, such an announcement might be couched in euphemisms framing the story as the year-end period when Microsoft managers traditionally evaluate their employees for raises and retention, as well as plan what have become nearly annual company reorganizations.

Going into the evaluation period, however, some groups within Microsoft already have hiring freezes in place, the former managers said.

“I don’t think you would see any formal announcement as such, but I would expect that they will try to maintain zero-growth or a little downsizing where some folks are told that they have ‘x’ number of weeks to find a new position, otherwise, they are history,” one of them told InternetNews.com, in an e-mail interview. “This has happened in the past and it is a good way to eliminate excess fat.”

Page 2: Bad PR

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Bad PR

Both former managers pointed out that Microsoft has always taken pride in the fact that, unlike most of its competitors and partners, it has never had to have general layoffs in its 33-year history — and often uses that as a talking point when it is hiring.

Still, neither is calling the speculation an impossibility.

“This might be the first real employee cut-back (pure layoffs) at MS at the corporate campus,” the second manager said in an e-mail to InternetNews.com.

“If it happens, it will generate negative PR in the press for MS, being the first official layoff … [but] I think they may have to do that in order to include it in their outlook report along with their 2Q earnings report,” the manager added.

Additionally, if Microsoft does announce layoffs, departures aren’t likely to begin immediately. U.S. companies are governed by the 1989 Worker Adjustment and Retraining Notification Act (WARN), which requires 60 days’ notice before layoffs can commence.

Rumors of rumors

The rumors of pending layoffs surfaced just before Christmas in the Mini-Microsoft blog, an insider’s blog authored anonymously by a person who claims to be a well-placed company insider.

Yet, in a post on Tuesday, Mini-Microsoft discounted the rumors: “Did I hear any solid facts during all the snow parties I slushed around at during the Christmas holidays? Nope. Just still a bunch of second-hand rumors, probably filtered through people’s own agendas and likes and dislikes.”

However, officials said in October, during the company’s fiscal first-quarter 2009 earnings call, that they are slowing the growth of capital spending, particularly in the area of datacenters needed to support Microsoft’s future cloud computing plans.

While the company lowered its growth predictions for the current fiscal year, however, it continued — at least as recently as Microsoft’s annual meeting in November — to predict year-over-year growth, albeit slowed somewhat from previous years.

Microsoft showed 18 percent year-over-year growth for fiscal 2007. In October, officials said it was still on track for 7 percent growth in fiscal 2009, which ends on June 30, 2009.

Where to cut?

Enderle said that if Microsoft goes through with the rumored cuts, he expected to see the ax fall hardest in areas that are underperforming, such as units of the Entertainment and Devices Division and the Online Business Division.

Granted that Entertainment and Devices, headed by president Robbie Bach, has the profitable Xbox game consoles, it also has the Zune music player, a serious underperformer in Microsoft’s portfolio.

Meanwhile, starting Jan. 5, the online services business will be led by newly named president Qi Lu, a former Yahoo executive vice president. His new domain includes Microsoft’s troubled Live Search business as well as online advertising.

Fudzilla, in its post, suggested that MSN is also ripe for cuts, and that Microsoft’s Europe, Middle East and Africa sales group may also feel the knife. Among the rumors posted on Mini-Microsoft, some also suggested cuts may be coming in Microsoft’s finance group.

One thing that almost everyone agreed with, however, is that product groups with highly successful products, including the Office organization, would likely be spared the most brutal cuts.

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