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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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January 14, 2009 10:04 PM

Some at Microsoft bracing for possible reorganization announcement Thursday

Posted by Benjamin J. Romano

An early look at a story in Thursday's paper: Some Microsoft employees were bracing for news of a possible reorganization that could be communicated internally Thursday. A Microsoft spokesman declined to comment, consistent with the company's handling of persistent rumors swirling around plans for cutting costs to account for deteriorating economic conditions.

[Update, Friday: A minor organizational shift in the Windows Live Engineering group emerged Friday.]

One rumor pegged Jan. 15 as the date of a possible announcement.

At its last quarterly earnings report in October, Microsoft announced plans to trim $400 million to $500 million in operating expenses in the current fiscal year through slower hiring, reduced capital spending and cuts to travel budgets and vendor services.

The Wall Street Journal reported Wednesday that Microsoft is "seriously exploring significant work force reductions" that could be announced during its fiscal second quarter earnings report next Thursday. The story also suggested cutback plans remain in flux.

Microsoft employees in some groups were anxiously expecting an internal announcement of organizational changes, one of these employees said Wednesday. This person asked not to be named while discussing internal matters.

The scope of any potential reorganization, and whether it would include project cancellations or job cuts, was unclear.

Here's some more background that we didn't have space for in the print edition:

Several major technology names have announced layoffs as consumer spending seizes up and companies slash IT budgets. Google, for one, announced a more targeted 100-person cut in its recruiting operation on Wednesday. (Check back here on Thursday for a look at the tech job market.)

Microsoft has already taken steps to control its costs. The company slowed hiring substantially in the last six months of 2008 -- though it did continue to add staff. It had 95,664 employees globally at the end of November.

Matt Rosoff, an analyst at Kirkland-based Directions on Microsoft, does not expect a company-wide layoff. Rather, if Microsoft needs to reduce its head count because sales have dropped off dramatically, he expects targeted cuts and reorganizations.

"They might cut some non-strategic or under-performing product groups," Rosoff speculated.

Also, at a company's that's obsessed with rankings, employees in the bottom 10 percent are regularly given a nudge toward the exit through poor performance reviews and paltry bonuses.

"Microsoft is always sort of moving the bottom 10 percent in a group along," Rosoff said. Companies refer to this as good attrition. One way Microsoft could reduce employee costs is to not replace those people immediately, he said.

It's hard to over estimate the economic impact Microsoft has on the region. In 2004, 233,220 people in the state depended on the company in Washington state, according to a 2007 report from economist Dick Conway and the University of Washington's Economic Policy Research Center, summarized in this column by my colleague, Brier Dudley. At that time, Microsoft employed about 28,000 people directly in the state. As of Sept.30, the company's full-time employees numbered 40,797 in Washington.

And that figure does not account for the legions of contract employees, working through companies like Volt Technical Resources and Excell Data. If Microsoft does decide to cut staff, many expect it to focus on its contractor workforce first.

And, in fact, I've heard multiple reports of contracts being abruptly cut short. On Dec. 31, I reported that about 180 contractors and vendors working at the MSN Homepages Team were let go. The decision was "due to budget cuts," read an e-mail informing their managers.

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