Microsoft Readies Cuts; Though Big Layoffs Unlikely

CNBC's Jim Goldman reports on Microsoft's plans for 2009

By Jim Goldman/ CNBC
|  Monday, Jan 5, 2009  |  Updated 6:32 AM PDT
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Microsoft Readies Cuts; Though Big Layoffs Unlikely

AP

Copies of Microsoft Corp.'s Windows Vista computer operating system and Microsoft Office are shown for sale Tuesday, Jan. 30, 2007 at a CompUSA store in Mountlake Terrace, Wash., north of Seattle. Tuedsay was the first day the long-awaited upgrade to Windows XP was available for sale to the general public. (AP Photo/Ted S. Warren)

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Microsoft will embark on a significant cost-cutting initiative in 2009, which might begin as early as this month, to offset a global slowdown in sales. However, sources tell Jim Goldman of CNBC, the cuts will largely be handled through attrition and the non-renewal of contract employees, rather than through a rumored, sweeping layoff.

Rumors of a broad workforce reduction at the world's largest software maker have been swirling since a blog post last week purported to show that Microsoft was preparing to lay off as many as 15,000 employees, or 17 percent of its workforce. A Microsoft source tells Goldman that the speculation is "grossly exaggerated," but added that "any company not paying careful attention to headcount in a climate like this is nuts." Calls and emails to Microsoft Saturday morning were not immediately returned.

One of the units already seeing cutbacks is Microsoft's sagging browser business. A report in the Seattle Times says 180 contract workers were told last month that their services would not be renewed. Just yesterday, researcher Net Applications reported that Microsoft's Internet Explorer browser registered 68 percent market share in December, down from 74 percent in May.

Microsoft's decline comes amid browser gains by its top rivals, including Apple Inc.'s Safari browser, Mozilla's Firefox, and Google's new Chrome. There is growing speculation that as Microsoft continues to chase a deal with Yahoo, it will cut back on resources in its existing internet unit which continues to lose huge amounts of money every quarter, even as Google tightens its market dominance in the online marketplace. Many tech companies have announced sweeping layoffs recently, including Hewlett-Packard, Sun Microsystems, Applied Materials and National Semiconductor. It appears, however, that Microsoft will be following the strategies set forth by Cisco Systems and Google, instituting cost-cutting measures like travel restrictions and hiring slowdowns or freezes, rather than across-the-board cuts.

In fact, in November, a blog report claimed Google was readying pink slips for 10,000 of its workers, but within days, CNBC's David Faber confirmed that the company, which has hired an estimated 15,000 workers over the past three years, would essentially institute a hiring freeze instead, and that a massive layoff at Google was not imminent. A source did tell CNBC's Jim Goldman that Microsoft considered a more aggressive strategy, including a significant layoff. Those plans may still be on the table, this source says, but it appears the company will instead reign in costs in other ways.

Microsoft reports its second quarter earnings on Jan. 22. Should the company announce a cost-cutting strategy, it would likely do so on or before that date.

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