Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.
By Cynthia L. Webb washingtonpost.com Staff Writer
Wednesday, July 7, 2004; 9:32 AM
Even companies with $56 billion in the bank have to do some belt tightening. The company in question is Microsoft, whose chief executive, Steve Ballmer, outlined the company's plans to cut $1 billion in costs in his annual e-mail message to employees.
Ballmer yesterday "declared that the personal computer industry and his company were still growth businesses, and he predicted that the number of PC's in use worldwide would increase 60 percent, to one billion, by 2010. But Mr. Ballmer left no doubt that Microsoft must behave more like the mature company it has become to reduce the constant scrutiny it faces from antitrust regulators around the world and the pressure it increasingly faces from investors," The New York Times reported. "Microsoft invested when most technology companies shed workers and projects during the industry slump, and as a result its expenses have increased faster than the company's revenues over the last three years. 'This obviously is not a trend we can continue,' Mr. Ballmer wrote to Microsoft's 57,000 full-time workers. 'This year, we are targeting nearly $1 billion in efficiency improvement and cost reduction across the company, primarily by rethinking how we do things.'"
• The New York Times: Amid Belt-Tightening, Microsoft Talks of a Bright Future (Registration required)
• The Seattle Times: Excerpts of Memo Sent To Employees
The Financial Times reported that Ballmer's "pledge to cut costs comes against a background of concerns about security flaws in Microsoft software, delays to the launch of new products and competition from Linux, the open source operating system. Dell, the world's largest personal computer maker, yesterday announced that it is to launch its first Linux-based desktop computers."
The Wall Street Journal in a front page article said "Ballmer's message is the latest sign that Microsoft, high-technology's greatest success story, must cope with slower growth and other issues common to maturing companies. Microsoft is scrambling to instill some of the discipline of older concerns, while preserving the aggressive spirit that led to dominance in personal-computer software. Compounding Microsoft's challenge: The company is battling the competitive threat to its primary software offerings from open-source products. The 'core' issues facing the company, Mr. Ballmer wrote in the e-mail to the company's 57,000 employees world-wide, are largely those that have been put to him by the company's own workers: 'Will we be first with important innovations? Will process excellence lead to greater ability to make an individual difference? Will our focus on costs hurt employees personally and will it hinder new investments? Will we grow and will our stock price rise? Will the PC remain a vital tool, and will we remain a great company?'" While answering each of those questions with a firm 'yes,' Mr. Ballmer's memo acknowledges big hurdles in satisfying software customers, shareholders and employees."
Nevertheless, Ballmer's e-mail message carried an upbeat tone, as did remarks he made in other interviews. Ballmer told The New York Times that "Microsoft was more confident about competing against the rising challenge of open-source software like the Linux operating system, which is distributed free. Microsoft's competitive response is to emphasize what it contends is the lower total cost of owning, maintaining and supporting its Windows operating system." And to the Seattle Post-Intelligencer: "I'm not saying that we should shortchange investment in new areas... But if we're going to do something, let's do it cost-effectively. I want to make sure we have an efficient cost structure precisely so we can afford to invest in all the areas where I see opportunity."
While most companies would have to dole out pink slips to achieve $1 billion in savings, Microsoft has a different, albeit hard-to-grasp plan. "Ballmer did not spell out how the cost reductions would be achieved. However, he did suggest that Microsoft could save 'hundreds of millions of dollars' by managing its advertising and marketing more effectively," The Financial Times reported.
Ballmer "urged employees to take more accountability for their work, calling for them to prioritize goals better than in the past and focus on five to seven measurable 'commitments' each year. A Microsoft spokesman said the cuts don't involve any layoffs and that hiring for the current year will be 'consistent' with past years," The Wall Street Journal reported. The article also noted: "Wall Street had been anticipating the cuts but Microsoft, until now, hadn't quantified an amount. In addition to employee-benefits changes, the cuts will come primarily from savings the company will reap by unifying its marketing and advertising across its business units, and consolidating the number of outside partners it uses for event planning, direct mailing and other customer-relations activities, according to a Microsoft spokesman."
About All That Cash
Ballmer also explained why the company cannot tap its cash reserves instead of cutting employee benefits, including changes to its prescription drug and stock discount programs. "Using some of Microsoft's $56 billion in cash to maintain worker benefits, Mr. Ballmer explained, is not an option. 'The cash is the shareholders' money,' he wrote, 'so we need to either invest in new opportunities or return it to them,'" The New York Times said. Bloomberg picked up on this excerpt from Ballmer's memo: "We must ensure a competitive cost structure or competitors will offer prices, services or innovations that we cannot afford to match."
• Bloomberg via the Los Angeles Times: Microsoft CEO Defends Cuts To Worker Benefits (Registration required)
