the world as we write it
Thursday, January 22, 2009
Microsoft stuns with profit miss, to cut 5,000 jobs
Thursday, Jan 22, 2009 7:0PM UTC
By Franklin Paul and Bill Rigby
NEW YORK (Reuters) - Microsoft Corp stunned Wall Street with disappointing results that included plans to slash up to 5,000 jobs and a warning that profit and revenue will almost certainly drop over the next two quarters.
The news from the world's largest software maker, which had not been expected to report results until after the close of trading on Thursday, sent shock waves across financial markets, pulling down the Nasdaq and the dollar, and sending Treasury debt prices higher as investors sought safer assets.
Microsoft's shares dropped as much as 11 percent to its lowest level since January 1998, adding to a 40 percent decline in the past year. It blamed the miss on the weakness of the PC market and the popularity of low-cost netbook computers, which have combined to badly undercut sales of its dominant Windows operating system.
The market has become so volatile, Microsoft cautioned, that it will not issue earnings or revenue forecasts for the rest of its fiscal year ending June 30, 2009 -- other than to predict both will very likely be lower.
"It is pretty bad when things are deteriorating so fast that even the largest companies in the world don't know how rapidly it is happening," said Jefferies analyst Katherine Egbert.
Microsoft posted a profit of $4.17 billion, or 47 cents per share, in its fiscal second quarter ended December 31, versus a profit of $4.71 billion, or 50 cents, a year earlier. Analysts were looking for earnings per share of 49 cents, according to Reuters Estimates.
Revenue rose 2 percent to $16.63 billion, missing the average analyst forecast of $17.1 billion.
Microsoft's elimination of 5,000 jobs -- 1,400 of which on Thursday -- amounts to about 5 percent of its estimated 96,000 work force, the biggest reduction ever by the software maker.
"Clearly business conditions are worse than people were expecting," said Richard Williams, analyst at Cross Research. "This is a substantial amount of jobs cuts. Microsoft has never had a layoff like this in my knowledge and it's sending a signal that the times are definitely changing."
The job cuts follow similar moves by other technology firms, including AT&T Inc, Dell Inc, Motorola Inc and Advance Micro Devices Inc, all of which are suffering from the global economic slowdown.
THREATENED BY NETBOOKS
Microsoft faces a shift by PC buyers to cheaper netbooks, which are small, stripped-down laptops. Netbooks can run Windows, but Microsoft makes more on each sale of Windows for a PC than it does for a netbook. Some netbooks also use the rival open-source Linux software.
Chief Executive Steve Ballmer said Microsoft also lost market share to Apple Inc, which on Wednesday posted surprisingly strong results.
"We are certainly in the midst of a once-in-a-lifetime set of economic conditions," Ballmer said on a conference call. "The economy is resetting to a lower level" of spending, he said, adding that he did not expect a quick economic rebound.
However, Ballmer noted that Microsoft will be adding "thousands of jobs" in strategic areas like Internet search, where it has been lagging behind Google Inc, and that he still desires a search partnership with Yahoo Inc.
But Chief Financial Officer Chris Liddell said he does not expect significant acquisitions this year, despite hopes from some Yahoo shareholders for a buyout.
Shares of Microsoft were down $2.01 to $17.37, after touching an intraday low of $17.19, the lowest level since January 1998. It was the biggest single-day drop in the stock since an 11.38 percent fall on April 28, 2006.
(Additional reporting by Jim Finkle in Boston and Robert MacMillan and Sinead Carew in New York; Writing by Tiffany Wu and Paul Thomasch; Editing by Derek Caney)
Bombed by The Black Rider at 11:37 AM
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Crowley: Balance of power trying to find balance
Democrats hold a strong majority in Congress, but with power comes a power struggle, and a potential headache for President Obama.
Just two days into his term, the president is already facing pushback from leaders of his own party.
House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have made it clear -- it's not their job to answer to Obama.
To a certain degree, the president-Congress tension is simply politics at play -- something that happens every time a new president comes in.
But this time, the Democrats have even more power than they did before the election, meaning Pelosi and Reid both have huge majorities in their respective houses.
Pelosi's biggest problem with the president's agenda is the silence she's hearing when President Obama is asked about former President Bush's tax cuts.
During the campaign season, Obama proposed repealing the Bush tax cuts on those making at least $250,000, but now it's more likely that the president will delay any tax increases on the wealthy until 2011, when the tax cuts expire.
The Obama team says that in the middle of a recession you don't, in effect, raise people's taxes.
Pelosi, however, doesn't buy that argument. She wants to see them rolled back now.
"We had campaigned in saying what the Republican Congressional Budget Office told us: Nothing contributed more to the budget deficit than the tax cuts for the wealthiest people in America," Pelosi said in an interview Sunday with Fox News.
A spokesman for Senate Minority Leader Mitch McConnell called Pelosi's statement "false," and cited a recent fact check by the St. Petersburg Times disputing the House Speaker's claim that tax cuts for the wealthy are the biggest contributor to the budget deficit.
Pelosi said she would not seek to block the president's proposed stimulus plan over its lack of tax hikes for the rich, but she urged Obama not to simply let the tax cuts expire in two years.
"[Tax cuts on the wealthy] have to prove their worth to me as to how they grow the economy, how they create jobs," she said.
Pelosi is also pushing for an investigation into the Bush administration's handling of the Justice Department, while Obama and his aides say there are other priorities besides focusing on the administration they are succeeding.
"I think that we have to learn from the past, and we cannot let the politicizing of, for example, the Justice Department, go unreviewed," Pelosi said last weekend. "Past is prologue."
Before becoming president, Obama made it clear that investigating the Bush administration wasn't a priority.
Over in the Senate, Reid has taken a similar stance to Pelosi's. In an interview with The Hill earlier this month, the Democrat said, "I don't believe in the executive power trumping everything. ... I believe in our Constitution, three separate but equal branches of government."
"If Obama steps over the bounds, I will tell him. ... I do not work for Barack Obama. I work with him," he said.
Obama, however, has made clear he's not letting any pushback slow him down. Even before his inauguration, he threatened to veto any attempts to block his access to the remaining bailout funds.
As the Obama administration gets settled in, one can expect the tug and pull between the White House and Congress to continue: It's that balance of power getting into balance under new circumstances.
Bombed by The Black Rider at 11:35 AM
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