Microsoft cuts 5,000 jobs - but Ballmer's hiring

Redmond treads water

So where are the cuts coming?

Judging from MiniMicrosoft, people have read emails that said cuts are coming in Microsoft's loss-making (and hugely inflated) online services business - and the units that support them.

Satya Nadella - the president of Microsoft's search, portal, and advertising platform group, responsible for Live Search, the MSN portal and AdCenter - has apparently sent an email warning of cuts.

That group has seen massive expansion through acquisition and received billions of dollars of additional R&D to build search and ad serving. Yet it has struggled to hold its third place rather than grow market share. During the second quarter, revenue from the entire online business was flat at $866m. By contrast, market leader Google saw revenue grow 18 per cent to $5.7bn.

Cuts are also expected in global foundation services, the group inside Microsoft that supports the burgeoning online Microsoft services. An email warning of cuts has apparently been posted by the vice president for global foundation services, Debra Chrapaty.

Her group provides data centers, security, and operations support for MSN, Window Live, Microsoft collaboration, and collaboration services in addition to 150 additional Microsoft services and web portals. These include a raft of Web 2.0 services, plus search and AdCenter.

Blog commentators also indicate cuts and restructuring in the offline world. This includes the 17,000-strong worldwide service group, which supports customers and partners running Microsoft's software, and the Microsoft Business Division, which is home to Office.

With tightening revenue, it was clear that Microsoft's online business would get hit. When Ballmer spoke, though, he was blunt to the point of rudeness to imply it was business as usual and the company's pushing on with its investment online.

Asked if Microsoft would review its portfolio and "diversify certain assets or technologies" - translated: cut-loss making activities where it has no market share - Ballmer responded bluntly: "I like our portfolio." Pause. "The board likes our portfolio."

It was a response notable for its tartness in the normally cordial environment of a Wall Street call to discuss quarterly performance.

Furthermore, while chief financial officer Chris Liddell was explaining the 5,000 going are full-time staff, not contractors, Ballmer piped up that Microsoft would be making fresh hires.

Was this just tough talk to shore up Wall Street and justify the course Ballmer's leading, a course that has troubled and underwhelmed observers?

What ever it was, you can expect more cuts if Microsoft's trimming doesn't work and sales of new Windows copies go as badly in Q3 as they did in Q2. Right on, Microsoft's making the serious change from large, annuity-based corporate licenses on PCs, servers, and tools.

Indeed, things might be even worse than they seem now - we just don't know. Liddell admitted that the 5,000 people going excludes contractors. Contractors are not included in the head count by Microsoft but are counted as "cost".

The contractor "cost" will be cut by 15 per cent Liddell said, indicating that more cuts being enacted than were announced Thursday or that more cuts are imminent. ®