Microsoft reported disappointing results for the second quarter of its 2009 fiscal year, and announced up to 5,000 job cuts. Impacted by the overall economy, slumping PC sales, and low-cost “netbooks,” revenue was $16.6 billion, while operating income was $5.94 billion, the company says.
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As usual, it isn’t easy to determine how Microsoft’s embedded business — hopefully relatively resistant to shifts in consumer confidence — impacted its bottom line. Microsoft has five divisions: Client, Server and Tools, Business, Online Services, and Entertainment and Devices (EDD). The last of these, EDD, is responsible not only for Microsoft’s embedded operating systems — Windows Embedded Standard, Windows XP Embedded, Windows CE, and Windows Mobile, for example — but also for consumer products such as the Xbox 360 gaming console and Zune music player.
Microsoft EDD revenue for Q2 of FY2009
According to Microsoft, EDD revenues increased by six percent year-over-year, going from $3.08 billion in Q2 FY2008 to $3.18 billion in Q1 FY2009. The company says revenues were buoyed by record sales of more than 6 million Xbox 360 consoles, a doubling of Xbox sales in Europe, and the fact that the Xbox 360 outsold Sony’s PlayStation 3 by two to one in the United States.
Meantime, desktop editions of Windows, such as Windows Vista, Windows XP, and the newly announced Windows 7, are part of Microsoft’s Client division. Here, revenue was said to have decreased eight percent year-over-year, to approximately $3.98 billion.
Calling the PC market “significantly below expectations,” Microsoft said that the unit growth in OEM Windows licenses fell by one percent. In contrast, OEM licenses had grown by eight percent during the first quarter of the company’s 2009 fiscal year.
Microsoft Client revenue for Q2 of FY2009
Results for Microsoft’s Client division were particularly disappointing in that holiday sales had been forecast to result in revenue growth of between seven to 10 percent during the quarter. Instead, Client revenue fell by approximately six percent in Q2 FY2009, compared to Q1 FY2009.
Microsoft noted in its results that Windows now ships on 80 percent of low-cost mini-notebooks, aka netbooks. In another context, that might have been good news, but netbooks apparently do little to boost Microsoft’s bottom line. Because most of the devices cannot run Windows Vista, they ship with Windows XP ULCPC (ultra low cost PC), a loss-leader edition of Windows XP Home.
Job cuts
Along with its financial results, Microsoft announced it would eliminate up to 5,000 jobs “in R&D, marketing, sales, finance, legal, HR, and IT over the next 18 months.” Without providing further specifics, the company added that 1,400 of the cuts would take place today.
While not as severe as rumored — some reports had suggested that Microsoft would shed up to 15,000 jobs — the job cuts will clearly impact the company’s embedded business. Microsoft watcher Mary-Jo Foley writes in her blog for ZDNet, “I’m hearing from my sources that the EDD unit … is being hit with the bulk of the 1,400 person cuts.”
Chris Liddell, Microsoft’s chief financial officer, said “We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year. In this environment, we will focus on outperforming our competitors and addressing our cost structure.”
In a filing with the Securities and Exchange Commission (SEC), Microsoft said it would also cut travel expenditures, reducing spending on contractors, reduce marketing spending, and scale back capital expenditures.
