Thursday, 22 January 2009

Bad times hit Microsoft, Nokia etal

(By Richard Holway) Well, it has finally happened. For the first time ever, Microsoft has announced that it is to cut 5000 – or more than 5% of its 91,000 – employees. Only 60 of the job losses, we understand, are in the UK. Microsoft also announced that its profits in the quarter to 31st Dec 08 were down 11%. That’s less than expectations and has so far resulted in an 10% fall in Microsoft shares (6.30pm). Revenues were $16.63b, up 2% on a year ago.

In a way, the part of the announcement that worried me most was Steve Ballmer saying that Microsoft could no longer give a profit and revenue outlook for the current financial year. Bad news really doesn’t scare me. Indeed the Microsoft job losses have been widely trailed. It’s not knowing how bad the news could be that really gets me frightened.

Although Microsoft bangs on about the strength of its portfolio, the biggest decline came from client software revenue (operating systems, Office etc) , which fell 8% as a result of “ PC market weakness and a continued shift to lower priced notebooks.” I’ve warned many times over the last year of the threat to Microsoft of the incredible growth in cheap Netbooks; where Microsoft struggles to get any revenue at all – let alone the kind of margin it has been used to. The rise and rise of the Netbook is unstoppable and this could do serious damage to Microsoft.

Xbox sales were one bright area – but even here Microsoft is playing second fiddle to Nintendo’s Wii. Anyway, it’s a fraction of the size of Micrpsoft’s core client business.

Today’s tech news wasn’t helped by another announcement from Nokia. Revenues in their last quarter fell by nearly 20% but unit sales fell by a lower 15%. That’s the rub for Nokia – they haven’t yet come up with a high end Smartphone to rival the iPhone and Blackberry Bold. I’ve given up the wait for the N97. Nokia estimate that global mobile handset sales could decline 10% in 2009. Like Microsoft, that’s a first.

Bad news from the tech sector came in thick and fast. Sony, Motorola and Intel were amongst those to announce downturns and job losses today.

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