Microsoft cutting jobs, but not products

Some criticize the cost-cutting moves, saying the company isn't scaling back its ambitions enough given the economy.

Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
Ina Fried
3 min read

Although Microsoft is cutting jobs, the software maker apparently isn't axing any major products as part of its cost-cutting moves.

On a conference call with analysts Thursday, though, CEO Steve Ballmer defended the company's decision to stick by all of its businesses, even as it looks to cut up to 5,000 jobs.

"I like our portfolio," Ballmer said on the conference call. "The board likes our portfolio," he said, before moving on to the next question.

Microsoft CEO Steve Ballmer

But should they be so pleased?

Microsoft itself acknowledged on the call that it does not have the leading position in several of its emerging businesses. The company makes the bulk of its money from Windows and Office. It also has a server software business that is profitable and fast-growing.

However, the software maker has struggled to attain profitability in its entertainment unit, its cell phone software unit remains small, and its online efforts continue to lose significant money.

Thus far, Microsoft has announced plans to cut only one product,its Windows Live OneCare security service. Even that one will be replaced by a new, free product code-named Morro.

The company apparently isn't cutting any entire products as part of the new cost cuts either, though it did say it would try to better prioritize its investments.

Microsoft's decision not to pare its efforts more significantly--and cut more jobs--clearly disappointed some analysts who were anticipating the software maker to make deeper cuts.

However, Directions on Microsoft analyst Matt Rosoff said he wasn't at all surprised that Microsoft didn't take an ax to more products. The longtime Microsoft watcher said that, as long as Ballmer is CEO, Microsoft is unlikely to pull back from any of its investments in areas such as search, mobile phones, or entertainment.

"That's their modus operandi and it looks like they are going to keep expanding," Rosoff said.

Technology Business Research analyst Allan Krans said that it's just not in Microsoft's nature to give up on a big bet.

Up to this point, Microosft experienced large success in nearly all of its endeavors, Krans said in an e-mail interview. That has provided Microsoft with both the cash it has needed for new businesses, as well as incentive to keep trying.

Watch this: Microsoft sneezes, and the stock market gets sick

"Search and Zune are two examples of Microsoft going against extremely well-entrenched leaders in Google and Apple, failing to make any significant headway, and still refusing to give up," Krans said. "IBM is on the opposite end of the spectrum, deciding to exit both the PC and printing business once it became clear that HP would be the market leader. "

Ballmer who often cites the server unit as an example of what can come from such investment, though that effort was closer to Microsoft's core business than some of its more recent pushes.

One of the biggest bets that shows no sign of slowing down is Microsoft's online effort, particularly in search.

"They look at that as a huge opportunity that they missed and they don't want to leave it to one company--Google," Rosoff said.

Rosoff said that even accepting that premise, he sees some areas to cut. One example he cited was all of the Web content Microsoft creates for MSN.

"I think some of their MSN assets, though profitable today, are not a good fit, long term," Rosoff said. "To have a network of content sites just doesn't seem like a core Microsoft businesses today."

Krans said he doesn't expect any big product changes, even online where Microsoft loses money.

"Losses represent less than 10 percent of operating profit for 2008, which Microsoft sees as the price of admission to what could become a substantial market," he said.

As for the scale of the job cuts, it was less than some analysts had been projecting and far less than those seen at other big-name firms. The Seattle Times' Brier Dudley summed it up well.

"Today's cuts aren't a radical transformation of Microsoft," he wrote. "It's a little inpatient liposuction, so the company will fit into the smaller pants it has to wear for a while."

Note: Rosoff is a contributor to the CNET blog network.