01.25.09

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Wrap-Up of Microsoft’s Demise; Units Shut Down

Posted in Finance, Microsoft, Office Suites, Vista, Vista 7, Windows at 5:49 pm by Dr. Roy Schestowitz

Oriskany ship sinks

MICROSOFT CORPORATION, a company that was accused of engaging in financial fraud with similar doubts still lingering and debt around the corner [1, 2, 3, 4, 5], is no longer able to hide its poor health. Since the announcement of the layoffs we have already published:

Today we take a closer look at the points that were not covered in previous posts.

It Hurts

MSN, which is Microsoft’s news Web site, put up a BizJournal article — one that’s titled “Gloom at Microsoft headquarters.”

The morning was appropriately foggy and dark as Microsoft employees came to work today, bracing for details of the unprecedented cutbacks announced by the company before dawn.

Google’s sales rose 18% compared to just 1% from Microsoft and Microsoft employees foresee what’s coming.

Microsoft’s announcement it will lay off 5,000 in its biggest-ever job-cut rippled through the Seattle area on Thursday, further unnerving residents of an already-bruised city of just over 3 million.

The Forbes article above may suggest that this is not over and another Forbes article is titled “Microsoft’s Massacre.” Microsoft’s business model, just like Novell's, is dying.

It’s Going to Get Worse

Analysts are saying that Microsoft’s layoffs are not sufficient and this assertion is consistent with previous words from several independent analysts [1, 2]. The scale of the layoffs is simply too low.

The unprecedented layoffs and other cutbacks announced yesterday by Microsoft haven’t appeased Wall Street. Microsoft shares are down more than 6 percent since the news came out, and some analysts assert that the company needed to go much further.

Here are some more details.

Microsoft Corp. (MSFT) announced the first significant layoffs in its 34-year history Thursday. Investors, analysts and even some employees say the cuts likely won’t be the software giant’s last.

The Redmond, Wash.-based company said it would eliminate 5,000 jobs, or 5% of its workforce, over the next 18 months, as well as cut some travel and other expenses. The cuts are needed to bring the company’s costs in line with the rapidly slowing sales of its flagship Windows software, which are dropping along with sales of PCs.

Which areas of the giant company’s operations will be affected – and how deeply – remains unclear. But investors and analysts say the company hasn’t moved dramatically enough to turn its fortunes around. And on Internet chat boards, some Microsoft staffers said they were concerned the day’s layoff announcement was the beginning of a drawn-out staff reduction.

Beginning of the End?

Microsoft’s fan press, the Motley Fool, has actually done the unimaginable by urging people to sell away Microsoft shares.

Vista: Microsoft lost nearly half its value in 2008 as it faced a tough year like many other tech companies. But it wasn’t all due to events outside the company — many argue that Vista did a spectacular job at lowering the company, as the unpopular operating system was shunned by many corporate users.

According to this column, “for Microsoft, the pain is just beginning.” The explanation is long.

And Microsoft’s stock? On Thursday, as Microsoft was announcing the layoffs, one cable-TV reporter commented that MSFT has “gone nowhere for years.” Actually, the stock has lost nearly half its value over the past year.

So now, for the first time, Microsoft — like IBM 16 years ago — is resorting to a major layoff.

It won’t be enough, any more than a layoff was enough for IBM.

Microsoft has been coasting for years on Windows and Office. Those have been the cash cows that enabled the company to fumble its way through years of halfhearted “innovation” and watered-down imitation. Microsoft has lost ground (or never gained a footing) in search versus Google, music players versus Apple, Web browsers versus Firefox.

Worse still, Microsoft has forgotten how to improve even those cash-cow products. Office 2007 is a mess for usability. Vista is a disaster in almost every way.

Mish Shedlock calls Microsoft “An Aging Gorilla”:

Microsoft is an aging Gorilla facing many battles. The first is declining PC sales as discussed above. A second more serious problem is that it’s products are too expensive and too buggy. A third problem of Microsoft is a shift to web-based services.

Cash Cows Starve

Revenue extracted from Windows and Office already declined at the beginning of 2008, but it continues to get worse for these core products which are among the few that are actually profitable.

Job cuts call for Microsoft to rethink Windows client

[...]

[E]ven Microsoft acknowledged Thursday that a flat PC market could continue to affect the overall Office business, while the entertainment and devices unit’s performance had more to do with holiday sales of the Xbox 360 game console than overall growth in that market.

IDG is citing its bosses at IDC (Al Gillen in this case). They spin it in favour of Microsoft, as they very typically do. What can Microsoft do now other than engage in new viral marketing campaigns for Windows? At the moment, Microsoft markets a product that is not even on the market (Vista 7) while neglecting those which do exist. It’s consistent with the evangelism strategy which Microsoft adopted.

“My initial evaluation of Windows 7 shows that it’s really just Vista with a fresh coat of paint.”

Randall Kennedy, InfoWorld (IDG)

Vista 7

Need to Eliminate Products

Microsoft needs to eliminate products. The question is, “which ones?”

Well, Om Malik from the broadband arena believes that Microsoft should concede its main race on-line.

Should Microsoft Reconsider Its Search Efforts?

[...]

As the company tries to get its act together, one question comes to mind: Should it give up on its search and online advertising efforts? The division brought in $866 million in revenues but lost $471 million.

The Wall Street Journal mocks the Zune and asserts that it’s time for the Zune to just go.

At its much faster rate of decline, the Zune player looks like it’s headed from low to no market share — unless Microsoft jazzes up the product soon.

The Zune is doing very badly, according to the following new report:

Sales for the Microsoft Zune MP3 player tumbled by 54 percent during the last quarter while the Apple iPod grew more than 3 percent in market share. The battle of the multimedia players might have met its final match.

Microsoft Corp reported last week that sales on its Zune MP3 player tumbled by 54 percent during the last quarter. The Zune rival, Apple Inc’s iPod, grew more than 3 percent in market share and is seen as the dominate music player. While the software giant is cutting divisions that don’t have improved sales, some analysts wonder if Zune is on the way out.

This troubled Zune makes headlines only when disaster strikes.

Another site contends that Microsoft is not cutting down in the right departments.

Seriously, how is it that, when the ax comes down, you pick the people that make you look good? Why don’t you fire the people who get you sued? Because, I tell you, the people who really love Microsoft have no idea what the big deal is with Office 2007, don’t care about new calculators in 7, and surely wouldn’t pinch a loaf for a more-compliant IE8.

But go ahead, divest yourself from the Zune. I was going to buy a Cowon, anyway.

Microsoft put some other products in the firing line, though.

Eliminated Products, Divisions

There are various elements in Microsoft that are affected immediately. One of them is another game studio which is shut down. Ensemble, which we mentioned in [1, 2, 3, 4, 5, 6], is lonely no more.

[I]t does seem that tips that the company’s Entertainment & Devices (E&D) unit (Windows Mobile, Xbox, Zune) was impacted most heavily by the first round of layoffs. And it’s increasingly sounding like the games side of the house bore the brunt of the E&D cuts.

Microsoft has closed completely its Aces Studio, the game group that developed and maintained Flight Simulator, sources close to the company confirmed. Aces’ other franchises include Combat Flight Simulator and Train Simulator.

This is also covered here:

There are other dead services, a pile of which has been growing since last year.

According to this, Popfly, the .NET poison that we mentioned in [1, 2, 3, 4], might get the axe too.

Microsoft on Friday said that it may discontinue its free Popfly service that lets non-programmers build Web 2.0 apps.

Popfly “is in a transitional phase,” said a Microsoft spokeswoman on Friday. “We have no other details at the moment.”

Popfly is essentially poison on the Web, just like Silverlight [1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12]. It’s designed to harm Web standards which make the Internet a commodity. It lumps proprietary elements onto it.

Another big setback is cancellation (Microsoft prefers saying “postponement”) of a massive datacentre in Iowa.

A day after reporting flat revenue for its online services business, Microsoft said it is postponing construction on a planned data center in Iowa.

It’s one of several other cost-cutting measures the software giant announced along with a disappointing financial report Thursday, including laying off around 5,000 people, reducing the use of vendors and lowering marketing spending.

There is also covered here and more news is likely to come regarding products and services that are taken off the shelves and called off, respectively. Withdrawals are urgently needed.

Monetary Problems

Hidden deep inside a stack of papers was this nugget of information.

Microsoft paid the federal government $3.1 billion between July and September of last year to settle a tax debt that was discovered during an Internal Revenue Service audit, the company disclosed in a regulatory filing.

We’ve already summarised Microsoft's tax evasion stories.

It’s very obvious that Microsoft is stressed for cash when it aggressively sues those who spread its software and it’s doing it again, along with its funded ally/pressure group, the BSA [1, 2, 3, 4].

Microsoft Gulf coordinates with Bahrain Ministry of Information on latest software piracy offensives in Manama

Microsoft GulfMicrosoft GulfLoading…, a member of the Business Software Alliance (BSA), the leading global organisation that is the voice of the world’s commercial software industry and its hardware partners before governments and in the international marketplace, has announced successful anti-piracy raids by the Bahrain Ministry of InformationBahrain Ministry of InformationLoading… (MoI) on two resellers operating in Manama. The offensives highlighted Bahrain’s comprehensive nationwide anti-piracy program and its thrust to make the capital city in particular a model of a piracy-free environment.

To summarise and to close off this tour through reports, regardless of the scale of future layoffs, one must remember to keep track of contractors and temporary workers, which is hard because Microsoft keeps it secret.

Microsoft says it plans deeper cutbacks in contract workers

[...]

Microsoft doesn’t report publicly the number of contractors who work for the company through job agencies. There have already been reports that the company hasn’t been renewing many contracts as they come due. Overall, Microsoft said it reduced operating expenses by $600 million in the recent quarter, and no doubt contractor cuts were part of that.

As we pointed out the other day, since not all staff is permanent, a lot of the layoffs (they don’t officially count or qualify as “layoffs”) are not visible to the public.

Remember the rule of thumb: things are much worse than Microsoft needs us to believe. It’s not unique to Microsoft, either (remember Enron?).

“There is such an overvaluation of technology stocks that it is absurd. I would include our stock in that category. It is bad for the long-term worth of the economy.”

Steve Ballmer

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10 Comments

  1. oiaohm said,

    January 25, 2009 at 6:09 pm

    Gravatar

    Apparently MS at long last it the penguin packed iceberg. Question can they patch the holes before its too late.

  2. The Mad Hatter said,

    January 25, 2009 at 6:39 pm

    Gravatar

    Good article by Frank. I like his writing style.

  3. The Mad Hatter said,

    January 25, 2009 at 8:26 pm

    Gravatar

    Just curious – where did you get the photo?

  4. Roy Schestowitz said,

    January 25, 2009 at 8:29 pm

    Gravatar

    Wikimedia.

  5. ZiggyFish said,

    January 26, 2009 at 2:15 am

    Gravatar

    Microsoft has forgotten how to improve even those cash-cow products. Office 2007 is a mess for usability

    This is interesting as Vista 7 will enforce such usability issues (Vista 7 will include more use of ribbon interfaces). Maybe we already know the outcome of Vista 7.

  6. Roy Schestowitz said,

    January 26, 2009 at 3:31 am

    Gravatar

    The assumption is that people will shell out money only for something that’s different (or looks different).

    It’s a bit like “New Coke”.

  7. ZiggyFish said,

    January 26, 2009 at 4:47 am

    Gravatar

    Roy,

    I see it as an anti-competitive move (under the radar). It then makes Linux’s (and also Mac’s) look old, and out of date. But the question is can Microsoft pull this off, can they make the change and have users conform with this new interface?

  8. Roy Schestowitz said,

    January 26, 2009 at 4:53 am

    Gravatar

    What’s anti-competitive here is the vapourware tactics, which can be a violation of the law.

  9. coffee said,

    February 13, 2009 at 11:56 am

    Gravatar

    I know what Microsoft should do to improve their Zune sales: get someone besides the big, hairy guy with a Zune tattoo to be their marketing front man/woman

  10. Roy Schestowitz said,

    February 13, 2009 at 11:57 am

    Gravatar

    They apparently tried to make up Obama as “evidence”.

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