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Originally published May 6, 2009 at 12:00 AM | Page modified May 6, 2009 at 12:46 AM

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Latest round of Microsoft layoffs may not be last

With Tuesday's second round of layoffs, Microsoft had made almost all of the 5,000 job cuts it had planned to make, including 1,200 local workers who were notified yesterday.

Seattle Times staff reporter

With Tuesday's second round of layoffs, which included 1,200 locally, Microsoft has made almost all of the planned 5,000 job cuts announced in January.

But there could be more coming.

In an e-mail to all employees Tuesday, CEO Steve Ballmer left open the possibility of more layoffs.

"As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and, if necessary, take further actions on our cost structure including additional job eliminations," he said.

Ballmer did say Microsoft was mostly done with the 5,000 cuts announced Jan. 22. That same day, the company eliminated 1,400 positions, leaving 3,600 to face the chopping block between then and July 2010.

In Tuesday's round, the company declined to say how many were let go, but said half the cuts were domestic and half were outside the U.S.

It also confirmed that 1,200 positions will be eliminated locally, the number recorded in a Worker Adjustment and Retraining Notice (WARN) sent Tuesday to the state's Employment Security Department.

"I wouldn't be surprised if they announced further cuts next fiscal year. That starts July 1," said Matt Rosoff, an analyst at independent firm Directions on Microsoft in Kirkland.

"I'm speculating, looking at the way the numbers are going. Ballmer's memo mentions the possibility as well," Rosoff said.

The cuts, the first major layoffs in the company's history, have represented a sea change for Microsoft, which has aggressively grown in the past decade, from about 31,500 employees in 1999 to more than 95,000 this year.

The company said it still intends to create 2,000 to 3,000 new jobs in high-growth areas between now and July of next year.

The latest cuts were made across the board and did not focus in "one particular place and not others," said spokesman Lou Gellos. Departments affected appeared to include the IT department at Microsoft, also known as MSIT; the sales, marketing and service group, also known as SMSG; and MSN.com, the online content sites Microsoft runs, according to sources at the company.

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Microsoft spent $290 million to make the first 1,400 cuts and has budgeted $237 million toward the rest of the layoffs, according to the third-quarter financial report it filed with the Securities and Exchange Commission.

In that filing, Microsoft reported the first drop in sales in the company's history.

While the numbers were still large — $13.65 billion in sales and a $2.98 billion profit — the company said its economic outlook remained grim. Chief Financial Officer Chris Liddell said the economy stopped getting worse in the quarter, but it was not improving.

The January job cuts helped Microsoft boost its operating income.

In the April earnings call, the company suggested it would make even more aggressive cuts, targeting a reduction of $1 billion more in operating expenses, to between $26.7 billion and $26.9 billion by the end of the fiscal year, June 30.

Analyst Rosoff said making another large round of cuts instead of pruning jobs slowly over in the next 14 months may mean Microsoft's sales in the current quarter are not going well.

"The fact that they seemed to accelerate it so cuts would all fall in [fiscal year] 2009 suggests the economy is not doing as well as Microsoft hoped it would, and sales were not doing as well as they hoped it would," Rosoff said.

But Ballmer's e-mail also indicated he was responding to complaints that dragging out the layoffs over 18 months, as originally planned, was hurting morale.

"We are moving quickly to reach this target in response to consistent feedback from our people and business groups that it's important," he wrote.

Affected workers in the U.S. were notified Tuesday. When workers in other countries will be told about their employment future depends on labor laws in those countries, Gellos said.

The cuts Tuesday represent a 3 percent decrease in Microsoft's local employment base of 41,000. Worldwide, a cut of 3,600 would represent a 3.8 percent decrease to its staff of 95,000.

Affected workers will receive severance packages based on their position and seniority, as well as career-transition services. Microsoft has set up a place on its Redmond campus where workers can access those services.

The 60-day WARN notice to the state, required by the federal government, says layoffs here will take effect officially no earlier than July 4. While some employees may have been told their last day was this week, they will be paid through July 4.

Microsoft stock slipped 40 cents Tuesday to close at $19.79 a share.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com

Copyright © 2009 The Seattle Times Company

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