Saturday, 3 January 2009

Microsoft to cull jobs. Are Netbooks to blame?

(By Richard Holway)

Microsoft to cull jobs

A report on a US blog that Microsoft will cull up to 17% or 15,000 of its 90,000 worldwide workforce in mid-January has been widely reported in all the ‘serious’ media. See Microsoft ‘mulling thousands of redundancies’ in The Independent Sat 3rd Jan 09. The cull is expected to be particularly severe in its overseas operations – the UK in particular where Microsoft currently employs 3000 people; many based in Reading.

Microsoft refuses to comment on the speculation but, given the state of the market right now, it would be hardly surprising if Q4 results missed expectations. A jobs cull would be an obvious reaction. But the levels being discussed look pretty harsh. If Microsoft’s results are expected to be that bad, God help some of the others.

Are Netbooks to blame?

If Microsoft is facing such tough times, I think that the amazing rise of the Netbook is responsible. iSuppli reported last week (See Reuters 23rd Dec 08 - Notebooks outship desktops for first time) that in Q3 Notebook/Laptop shipments (38.6m) exceeded PC shipments (38.5m) for the first time. Indeed the number of Notebooks shipped surged by 40%. This was almost entirely due to the amazing popularity of the new low cost Netbooks. Acer shipped 3m more Netbooks in Q3 than in Q2 and, again amazingly, is now the 3rd largest global PC company and only a minute 2% behind Dell at #2 (HP is #1)

Great you might say. But the 'problem' is that the cost of a Netbook is a fraction of that for a fully configured laptop. Indeed I have now seen Acer Netbooks advertised for less than £100. Both margins and, of course, the absolute net contribution per unit, is slashed with a Netbook sale. This is even more catastrophic for Microsoft. Most Netbooks don't even run under Microsoft. Those that do run a stripped down version of XP (Vista would 'kill' a Netbook) . It is said that Microsoft gets less than $15 for each Netbook sold with XP.

So I'm not overly surprised that Microsoft is 'hurting' badly right now. Given that I believe that Netbooks will be THE product of 2009 (for more detaiuls see my 20th Nov 08 post Netbooks - Threat or Opportunity?) with the likes of Apple rumoured to be entering the market, the future could look bleak indeed for Microsoft.

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