A Bleak First for Microsoft: Layoffs

By Peter Whoriskey and Annys Shin
Washington Post Staff Writers
Friday, January 23, 2009

Microsoft announced its first major layoffs in company history, saying it would cut about 5,000 jobs, one of several economic signals that emerged yesterday indicating that the recession was spreading and deepening.

A stalwart of the technology sector, Microsoft was strong enough to weather the dot-com bust and the 2001 recession unscathed, but the severity of this decline has led to cutbacks. And two new government reports underscored that this downturn may be far worse than many workers have known.

The number of new housing starts has dropped to its low since the Commerce Department began keeping data in 1959.

The initial claims for jobless benefits, meanwhile, jumped 62,000, to 589,000, for the week ended Jan. 17, matching the highest level since the recession of the early '80s. Unemployment stands at 7.2 percent, but many economists expect it to continue to rise by at least another point.

At the same time, analysts and economists are predicting more staggering bank losses of $1 trillion or more, a prospect that could overwhelm the federal $700 billion financial rescue plan known as the Troubled Asset Relief Program, or TARP.

"We entered an economic free-fall in the fourth quarter of last year, and in the first three weeks of January, we have not seen any evidence of that stopping," said Robert Dye, senior economist at PNC Financial Services Group. "The economic landscape could hardly be bleaker. We're just seeing bad news piling on top of bad news right now."

The Microsoft layoff announcement followed a drumbeat of dismal news from many tech companies.

On Wednesday, another tech giant, Intel, announced cuts that would affect 5,000 to 6,000 jobs. It will also shutter its last manufacturing plant in Silicon Valley.

The effects of the downturn had set in fast for the world's largest chipmaker. In mid-October, Intel had forecast sales of $10.3 billion; 10 weeks later, they came in at $8.2 billion.

The "speed of the downturn" was surprising, a company spokesman said.

The trouble for technology companies is far-reaching: Motorola, Autodesk, Seagate Technology, Lenovo Group, eBay, Yahoo, Dell, Xerox, Nortel Networks and Sun Microsystems have all announced layoffs in recent months.

In explaining its job cuts, Microsoft cited the rapid slowing in sales of personal computers. The cuts represent about 5 percent of the company workforce, but Microsoft said it also expects to hire 2,000 to 3,000 people in the next 18 months.

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