Steady firms, shaky results

Microsoft Corp.'s first-ever mass layoffs showed Thursday that even the most rock-steady technology companies are feeling the pain of the global recession.

Consumers and corporations are deciding they can do without the latest computers, software and even cellphones as they grapple with what Microsoft Chief Executive Steve Ballmer called a “once-in-a-lifetime set of economic conditions.” Worldwide tech spending is projected to fall 3% in 2009 after seven years of growth, according to Forrester Research.

“You’re seeing a lot of apprehensiveness across the board,” said Allan Krans, a senior analyst at Technology Business Research Inc. “Consumers, businesses -- nobody is spending money that they don’t have to spend.”

The belt-tightening has filled this quarterly earnings season with inauspicious milestones for such tech bellwethers as Microsoft, Sony Corp., Google Inc., Intel Corp. and EBay Inc.


Microsoft reported declining profit and slower-than-expected revenue growth Thursday and said it would eliminate as many as 5,000 jobs, about 5.5% of its 90,000-employee workforce. The broad job cuts were the 33-year-old company’s first, triggered by slumping demand for the personal computers that run its software.

Sony, the Japanese electronics giant, said early Thursday that it expected to post a $1.7-billion annual loss this spring, its first year in the red since 1995.

Google’s Web advertising business held up remarkably well against the downturn, but a write-down of some of its struggling investments resulted in the company’s first-ever drop in quarterly net income.

Tech companies continue to shed jobs to adjust to the changing economic landscape. Intel, Advanced Micro Devices Inc., Motorola Inc., Autodesk Inc. and others have disclosed plans this month to lay off thousands of employees.

“It’s almost the exception if you don’t announce job cuts this quarter,” said Christopher Hickey, an analyst at Atlantic Equities, an independent equity research firm.

So far, Google has spared all its employees but 100 recruiters who lost their jobs last week. And its quarterly earnings report offered a bright spot to match that of Apple Inc., which posted strong sales and profit Wednesday.

Google, based in Mountain View, Calif., said its revenue jumped 18% to $5.7 billion, from $4.8 billion in the year-earlier quarter.

Though its operating profit was up sharply, its net profit fell. Google said it had to write down its stakes in Time Warner Inc.'s AOL unit and Clearwire Corp., the struggling wireless Internet service provider, and it paid book publishers and authors to settle a lawsuit over its Book Search program.

Net income was $382 million, down 68% from $1.2 billion a year earlier. Excluding the cost of employee stock options and the other one-time charges, Google earned $5.10 a share, better than Wall Street’s estimate of $4.95.

CEO Eric Schmidt said in an interview that Google was bracing for an economy that had ventured into uncharted territory. “We don’t know what’s going to happen,” he said. “I don’t think anyone knows.”

Its shares rose $3.42, or 1.1% to $306.50 in regular trading before the earnings report, then jumped to $311 in after hours.

“Google is doing better than the rest of the pack by a long shot,” Sanford C. Bernstein analyst Jeffrey Lindsay said. “But no one is immune to a downturn like this.”

Before the opening bell, Microsoft said its revenue rose only 1.6% to $16.6 billion for its fiscal second quarter ended Dec. 31, which sent its shares tumbling 12% to $17.11. Revenue in the client division, which includes the Windows operating system, declined 8% to $3.9 billion. The company’s business division, which includes Microsoft Office, grew 1% to $4.9 billion.

“At the end of the day, Microsoft’s success is really tied to the strength and health of the overall PC market,” said Israel Hernandez, director of software research at Barclays Capital. “That finally caught up with them.”

Other companies dependent on PC shipments have also suffered. Advanced Micro Devices reported a fourth-quarter loss of $1.42 billion Thursday, its ninth consecutive quarterly loss.

Rival Intel said Tuesday it would close factories, resulting in up to 6,000 job cuts. Published reports indicate that its top executives worry that the current quarter could bring its first loss in two decades.

Troubles in tech are evident in retail. Holiday sales of consumer electronics fell 5.7%, according to the NPD Group. Circuit City said last week it would liquidate its inventory and close its 567 U.S. stores. EBay Inc. on Wednesday posted lower earnings and said its quarterly revenue had fallen for the first time since the online auction company’s founding in 1995.

Finland-based Nokia, the world’s largest cellphone maker, said Thursday it had shipped 15% fewer handsets during the fourth quarter than a year earlier. Ericsson of Sweden, the world’s largest maker of wireless phone networks, said it would cut 5,000 jobs in anticipation of spending cuts by telecommunications companies in 2009.

South Korea’s Samsung Electronics said last week that it planned to consolidate several major divisions. And a steep drop in consumer spending led Sony on Thursday to project revenue of $86 billion for its 2008 fiscal year, which ends March 31.

That represents a 13% slide from 2007.

“The massive economic upheaval being experienced across the globe is sparing no one in the consumer electronics world,” Sony Chief Executive Howard Stringer said.



Times staff writer Alex Pham contributed to this report.