Microsoft Layoffs: A Fire or Just Blowing Smoke?

Unfortunately, layoffs are on nearly everyone's mind as we limp to the 2008 finish line and prep for an even more precarious 2009. Even Microsoft is not immune to layoff talk. Not anymore.

Assumed Microsoft employee and blogger Mini-Microsoft wrote a post before Christmas about rumored layoffs that could arrive in mid-January, a week or so after CES (consumer electronics show) and a week before Microsoft's 2009 fiscal second-quarter earnings are announced.

The mid-January timeframe for layoffs makes sense. If Q2 '09 earnings are weak, as they are predicted to be, Microsoft will look as if it's being proactive to contain costs by reducing headcount. Mini-Microsoft wrote of a possible 10 percent workforce reduction. My God, that's 9,000 people!

Microsoft's metrics for letting employees go can be best described as chilly. Mini-Microsoft wrote that his team is being asked to review people on an HR Watch List and focus on "two-time 10%'s." These are employees that are either Situation I (should be fired) or Situation II (effective but have reached their career maximum).

If the rumored layoffs do go down, will it be the price Microsoft pays for the over-hiring during the past few years that has led to 94,286 employees worldwide? Mini-Microsoft thinks so.

"Let's say we are having intensive cutbacks and/or RIFs and layoffs. It is absolutely essential that Microsoft steps back and asks, 'Whoa, how did we get here and who was leading us?' How did we go on a drunken hiring binge and continue it even though a year ago most of us realized we were dropping into a recession? It's irresponsible leadership."

I do want to stress that Microsoft layoffs remain a rumor, and just yesterday Mini-Microsoft's post offered feedback about mid-January layoff speculation. The reader reactions to layoff talk are all over the place, but the common belief is that costs must be cut somehow, and that some groups are in more danger than others.

A sampling of comments from Microsoft managers and employees (presumably):

"For the last time folks -- THERE ARE NO LAYOFFS HAPPENING IN JANUARY..[...] beyond Jan...well we dont have a crystal ball…"

"We are not immune to recession and our bottom line will see a hit for few quarters. We expect a full recovery by FY10 Q3. We are very optimistic that this recession is an opportunity for us and we will play our cards well. Urge all Microsoft employees to stay focus and keep doing the great work. You will hear more from SteveB soon on his plans. Thank you !!"

This comment does not bode well for the Entertainment and Devices group:

"We (E&D management) had a meeting with Ballmer around eight-weeks ago. Ballmer discussed the GE approach to laying off the bottom 10% every year. When asked how Wall Street would respond to our layoffs, he said they would be happy."

And Microsoft Advertising may be in jeopardy as well:

"Rumor confirmed from Microsoft Advertising. There are several areas within the organization that I can confirm an upcoming "reorg." Leaders of undisclosed groups have been asked to represent materials around their groups' long term plans and feasibility. I think this one is going to be big, hopefully they just cut the fat. There is plenty of it from my experience."

The Windows and Office groups, on the other hand, appear to be on more solid ground:

"Office and Windows are unlikely to reorg/lay people off in the near future and are [relatively] safe - we need to ship a high quality product soon (and we will this time, no doubt), so losing even the bottom 10% or whatever could have a negative effect on these two cash

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