Microsoft expected to cut jobs as profit weakens

By Franklin Paul and Jim Finkle

NEW YORK/BOSTON (Reuters) – Microsoft Corp is expected to post a quarterly profit that misses its own target and announce thousands of job cuts this week as the global economic slump hurts even the technology industry’s biggest players.

When the leading software maker reports fiscal second quarter results on Thursday, investors are likely to press for comments on its outlook and on Yahoo Inc, whose search business has been the object of Microsoft’s desires.

The report comes against a backdrop of a wounded global economy that has stifled demand for everything from personal computers to business software and video games, all markets in which Microsoft is a significant player.

“All eyes are on the forecast,” said Jefferies & Co analyst Katherine Egbert. “Expectations for the guidance are pretty low.”

Analysts on average put Microsoft’s profit at 49 cents a share for the quarter ended December 31, which includes a U.S. holiday shopping season that has been called the worst in at least four decades. The Redmond, Washington-based company had forecast a per-share profit of 51 cents to 53 cents for the quarter.

Wall Street is looking for quarterly revenue of $17.1 billion, according to Reuters Estimates, also short of Microsoft’s own target of $17.3 billion to $17.8 billion.

Egbert says she expects Microsoft to report sales of its Windows software for PCs and laptops to drop 3 percent from a year earlier, making it the toughest quarter in eight years. She blames the shortfall on weak consumer sales, noting that businesses have yet to cut back as much as retail shoppers.

Wall Street’s expectations for Microsoft’s performance for its fiscal year ending in June 2009 have declined since it last reported results three months ago.

Analyst forecasts for full-year net income have dropped 10 percent to $17.77 billion, while revenue projections are down 4.4 percent at $63.68 billion, according to Reuters Estimates.

POSSIBLE JOB CUTS

With an eye on reducing costs, Microsoft is widely expected to announce that it will cut jobs, following similar moves by other tech firms, including AT&T Inc, Dell Inc, Motorola Inc and Advance Micro Devices Inc.

“Checks indicate that Microsoft is likely to engage in headcount reductions to the tune of 6,000 to 8,000 employees or 6 percent to 8 percent of its 95,000 workforce,” said McAdams Wright Ragen analyst Sid Parakh. “Our checks also revealed some speculation over the potential for a second round of cuts in some groups sometime later in the year.”

Other analysts suggest the cost reductions may occur in the next few weeks and could also include more targeted cutbacks and attrition, rather than the big number of layoffs that some have speculated.

Microsoft has declined to comment on any likelihood of job cuts. Its shares have dropped 41 percent over the past year, while shares in another technology bellwether, IBM, have lost 16 percent. The S&P 500 Index has dropped 38 percent during the same period.

Analysts are also expected to pepper Chief Executive Steve Ballmer with questions about the status of the company’s relationship with Yahoo, now that the Internet company has named Carol Bartz as its new CEO.

Bartz told employees earlier this week that she had a phone conversation with Ballmer, who has repeatedly said he remains interested in pursuing a search partnership with Yahoo but does not intend to renew an offer for the whole company.

Microsoft made a bid for Yahoo last year, but walked away after they disagreed on price. Investors have been skeptical about whether the software company can win online advertising revenue away from Google and Yahoo, which are both stronger than Microsoft in the Internet search market.

(Editing by Phil Berlowitz)

from:   http://www.reuters.com/article/technologyNews/idUSTRE50J7QN20090121

IBM forecasts defy downturn

4:00AM Thursday Jan 22, 2009
Katie Hoffmann

Analysts say emphasising more profitable areas of business has helped IBM weather the poor economic climate. Photo / AP

IBM, the biggest computer-services provider, forecast full-year profit that beat analysts’ estimates, defying an industrywide slump that has curbed growth at other technology companies.

Shares rose as much as 5.3 per cent in extended trading after IBM said yesterday that net income will rise to at least US$9.20 ($17.44) a share in 2009, topping the US$8.75 average of estimates compiled by Bloomberg. Fourth-quarter profit also exceeded projections.

IBM’s earnings advanced even as sales fell in all units save the software division. IBM’s strategy of focusing on more profitable businesses, such as software, helped the company overcome “an extremely difficult economic environment,” chief executive Samuel Palmisano said.

“They’re using the current climate as an opportunity to cut costs,” Gartner analyst Carl Claunch said. “This is a pre-emptive strategy for improving profitability.”

Selling, general and administrative expenses dropped 3.1 per cent to US$5.83 billion last quarter. IBM reduced expenses partly by using more contract workers, chief financial officer Mark Loughridge said.

BM, based in Armonk, New York, rose as much as US$4.38 to US$86.36 in extended trading after closing at US$81.98 on the New York Stock Exchange. The stock has dropped 21 per cent in the past year.

Net income climbed 12 per cent to US$4.43 billion, US$3.28 a share, from US$3.95 billion, or US$2.80, a year earlier, IBM said. Total sales fell 6.4 per cent to US$27 billion, compared with the US$28.2 billion average of estimates compiled by Bloomberg.

Revenue in the software unit advanced 2.6 per cent to US$6.42 billion. IBM has spent more than US$5 billion in the past year on acquisitions to bolster its software unit, the company’s most profitable business. Gross margin, or the percentage of sales left after production costs, widened to 87.7 per cent from 87.1 per cent a year ago. IBM bought at least six software companies last year, adding new products to take on larger Microsoft.

The biggest of those was the purchase of Cognos for US$4.9 billion, giving IBM programs that track corporate performance. The company spent US$6.3 billion on acquisitions last year, the most ever, Loughridge said.

“They’re being opportunistic,” said New York-based UBS analyst Maynard Um, who has a “neutral” rating on the stock and doesn’t own it. “I continue to be surprised as to how they can grow” software sales.

Sales of computer services, which account for more than half of total revenue, fell 4 per cent to US$14.3 billion.

Revenue in all of IBM’s geographic segments declined, with the largest drop in Europe, the Middle East in Africa.

Sales there dropped 12 per cent, compared with a 2 per cent decline in the Americas and a 1 per cent decrease in Asia. The European decline would have been only 1 per cent when adjusted for currency fluctuations, IBM said.

Corporate earnings have slumped as the first simultaneous recessions in the US, Japan and Europe since World War II tighten credit markets and curb spending.

This month Intel, the world’s largest chipmaker, said profit in the fourth quarter fell 90 per cent as demand for computers ebbed. In November, Dell, the world’s second-biggest personal-computer maker, posted sales that trailed analysts’ estimates by more than US$1 billion, hurt by slowing technology spending.

IBM is trying to woo users away from Microsoft programs by offering its Lotus Symphony for free, making money instead from related technology and services. It adapted the software for use with Apple’s Macintosh computers and the Linux operating system in November.

from:  http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=10552947