Microsoft reported an 11 percent drop in net income for its fiscal second quarter compared to the year-earlier period. Revenue was up two percent to $16.63 billion, but profit was $4.17 billion, or 47 cents a share, versus $4.71 billion and 50 cents a year earlier.
Analysts had expected earnings per share of 49 cents. Microsoft’s stock dropped to around $17 a share in late trading.
The software giant said economic conditions and a weak PC market in the year-ending quarter negatively impacted its Windows division, where revenue fell eight percent. A continuing shift to lower-priced netbooks also hurt the company’s profit margins.
But CFO Chris Liddell assured investors that Microsoft would respond to “volatility in the macroeconomic environment” by implementing a $1.5 billion reduction in operating expenses.
“The economy clearly has deteriorated more than we expected,” Liddell said during a conference call. “We have initiated a number of cost-saving steps which we shall layer in over the course of the next year.”
Hitting the Brakes
Among other things, Microsoft will freeze pay raises and cut up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources, and IT over the next 18 months, including 1,400 jobs now. “We are also looking for reductions in marketing expenses and discretionary spending,” Liddell said.
The 5,000 job cuts are all internal positions, Liddell noted. “Outside contractors are not included in that number, and we also will certainly be looking at reducing that,” he said.
Still, Microsoft CEO Steve Ballmer said that even as the company eliminates some jobs, it will be adding more workers in key areas to take advantage of whatever market opportunities lie ahead.
“We don’t plan on shrinking, but we are putting the brakes on,” Ballmer told investors. “We are going to continue to invest in important areas of opportunity…