Microsoft sneezes, and the stock market gets sick Video

Microsoft sneezes, and the stock market gets sick Video Transcript

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>> Microsoft sneezes and the rest of the stock market gets sick. Welcome to the CNET News Daily Debrief. I'm Charlie Cooper here with my colleague CNET News' own Ina Fried. And Microsoft moved up its earnings announcement, slated for later in the day to -- before the market open because it had some bad news. It also had some bad numbers.

>> Yeah, definitely. I mean, I think people expected Microsoft to miss its initial forecast from October. The PC market was much weaker than they expected. Still some didn't expect it to be as bad as it was. This was below even what the Wall Street's lowered expectations were. I think more significant for the company is the fact that they're cutting jobs, which historically they've been able to avoid in part because they make so much money of their products.

>> And this is what, 5,000 people more or less?

>> It's 5,000 over the next 18 months. It's about 1400 today, right now and then of that 5,000 they also expect to add 2,000 or 3,000 jobs over the course of the next 18 months in other areas, so the net reduction is about 2,000 or 3,000.

>> A lot of companies unfortunately are laying people off, what's significant here is that this is the first across the board layoff that Microsoft in its three decade plus history has ever enacted.

>> It is. It's quite unusual and impressive that they've been able to go this long without having to do it, you know even after the dot com boom, they didn't have a company-wide type of layoff at the scale that they're talking about today. Still you know, from Wall Street we heard, you know the traditional fright. You know everyone likes layoffs -- everyone dislikes layoffs except for Wall Street who always want more. So we did hear some grumbling that the cuts weren't deep enough from the financial corners.

>> You were at a conference call in the morning, did management give a sense -- is this more the economy or their competitive position or a combination of the two?

>> I think what we heard about today is mostly of the economy, most of the threats that Microsoft faces are long term threats. So, the Windows business, the Office business, have been tremendously healthy and you know, certainly they were less healthy this quarter as sales, you know, PC sales and business spending slowed significantly. But you know, we weren't seeing the effects of you know people opting for Linux or people using you know Google instead of Office. So I think those threats are more long term. I think the types of things we're hearing about now are really the economy.

>> So, in theory at least they are better prepared to weather the storm than let's say other companies.

>> Definitely, that's totally true. I mean it is the case that Microsoft knows well ahead of time, you know, business is by their software often you know two or three-year licensing agreement and so that helps them a little. Although, Steve Ballmer pointed out in the call, you know as companies renew their contracts, if companies have twenty percent less workers, that's gonna mean the contracts that Microsoft does sign are smaller. So it's insulating them, what he talked about is dampening the oscillations, so the jolts are less severe, but it's not gonna overall I mean, Microsoft is not immune to this.

>> Chris Liddell who's the Chief Financial Officer also suggested that he expects the PC market will continue to remain weak, but he also says something, which I thought was interesting, PC market likely to remain weak, with netbooks continuing to grow as traditional PCs decline.

>> That was actually -- one of the factors that really hurt Microsoft in the last quarter is the fact that you know PC sales while weak overall compared to expectations were even weaker when you look at traditional desktops and notebooks used by both consumers and businesses. So the consumer market and the business market, you know were particularly weak and that's where Microsoft makes more money per unit. Most on businesses than consumer, less so on netbooks and then in emerging markets. Demand is actually the other way around, so netbooks are the thing that's actually growing. So that hurts Microsoft more. It sells typically Windows HP Home which it makes less money and than certainly the premium versions of XP or now Vista.

>> Tough times for Microsoft, thanks Ina. On behalf of CNET News, I'm Charlie Cooper. ^M00:04:11 [ Music ]