Microsoft Announces 5,000 Job Cuts Amid Weak 2nd Quarter Earnings
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By Bill Rigby and Eric M. Johnson

REDMOND, Wash. -- A mood of cautious optimism tempered with a dash of anxiety has spread on Microsoft's (MSFT) leafy campus in the Seattle suburbs, as the world's biggest software maker embarks on one of the most tumultuous periods in its 38-year history.

Since mid-July, three interlocking events -- all of which would have been considered highly unlikely six months ago -- have unfolded in quick succession, unsettling Microsoft managers and employees and roiling its share price.

First, CEO Steve Ballmer rejiggered top management as part of an ambitious plan to remodel the company around devices and services rather than software. Six weeks later, he announced his retirement within a year, sending shares soaring. Ten days after that, he unveiled a $7.2 billion purchase of Nokia's (NOK) phone business, a move that ate up the stock's recent gains.

Within the company's Redmond, Wash., headquarters at least, the casually dressed workers seem much more worried about the far-reaching reorganization announced by Ballmer than the multibillion-dollar Nokia acquisition, which has incensed many investors who view it as a waste of money.

"The funniest thing I read on LinkedIn was, 'Two black holes converge,'" said one Microsoft employee, who asked not to be named, soon after the Nokia acquisition was announced. "But I think there's some real potential here."

"... A Recognition That Microsoft Has Lost Its Way"

The topic of Ballmer's retirement elicited a more complex reaction from some Microsoft employees interviewed this week.

"Like Wall Street, there was initial euphoria with the announcement for employees," said one 15-year veteran who has worked in a number of units at the company, in response to Ballmer's retirement and a change at the helm of a company that no longer sets the pace for technological innovation.

"But he is as much a symptom as the actual problem. This whole crazy re-org will still happen. And nothing will really change." he said. "Among many of my fellow employees -- both new hires and long-timers -- there is a recognition that Microsoft has lost its way."

Microsoft declined comment on the mood of its employees.

One of the ways the company aims to regain its stride is the addition of Nokia's phone business, but that will likely complicate an already complex reorganization that is just getting under way.

"The re-org is more unsettling for some people than Ballmer's departure. Exactly how that shakes out is more interesting," said another employee who asked not to be identified.

"There is always a small percentage of people who do lose their job, or get put into an awkward new role. For those people, morale is very bad, of course. But whoever you talk to, they all noticed that the stock went up on the Ballmer [retirement] news. If sustained, that will make morale improve broadly."

Four New Groups

Under Ballmer's 'One Microsoft' vision -- which will take until the end of the year, at least, to complete -- Microsoft's five operating units, including the massive Windows and Office businesses, are being realigned under four new functional engineering groups, broadly covering operating systems, devices, applications and the cloud.

In practice, that means tearing up some existing units and shifting thousands of staff around campus. The old Windows business will largely go into the new operating systems unit, but the Surface tablet unit will go into the new devices organization, to be joined by Nokia's phones next year. Office will be split between the applications and cloud units.

Most advertising and marketing staff are being taken out of their traditional business units and grouped together under a unified team. The software parts of Xbox will go to operating systems while the hardware will go to the devices unit, but not until after the Nov. 22 launch of the Xbox One console.

Given the complexity, the full effects of the reorganization may not be felt for several more months.

"I guess the re-org hasn't yet settled down in a big way," said Raman Shrama, 34, who works at Microsoft as a program manager in the developer division, which helps outside firms make apps to run on Microsoft's Windows 8.

"I am personally not very impacted, because the division that I am working in is largely unchanged," said Shrama at the Overlake Transit Center used by thousands of Microsoft commuters.

Unsettled but Optimistic

Generally, he said, the mood at the company was good. "CEOs don't change every day. It's a big event, for sure. But I haven't noticed a drop in morale, or anything like that."

Microsoft's Redmond campus has maintained its laid-back air for the last few weeks. Crowds occasionally gather for morale-building events on one of the artificial-turf soccer fields. And in The Commons -- the campus social hub -- a few hundred employees congregate upstairs for the rowdy 'Trivia Tuesday' quiz.

One 31-year-old contractor who works on the Office user interface team said he was "very optimistic" about the changes.

"We are so far behind on the mobile end of things. This is the only hope we have for connecting to the younger generation," he said. "The PC market is declining so much. This might give us a chance to find a new approach and a new corporate identity to get behind. I don't think Ballmer was really that inspirational, someone people believed in."

Another 25-year-old software engineer in the Bing search engine unit said she was "excited" about what was to come.

"I don't expect a big change after his [Ballmer's] retirement. Microsoft is a big company. A new CEO won't change much," she said. "In the last company meeting, Steve talked about the 'One Microsoft' spirit. People liked that idea. Probably, the new CEO will continue that."

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Move the deck chairs

September 09 2013 at 11:37 AM Report abuse rate up rate down Reply
mike at home

Microsoft needs some one to understand that customer both business and consumer are what leads to profit and they do not yet understand that. Had they followed Google as a example their stock would be up a lot more than now thank you

September 09 2013 at 11:05 AM Report abuse rate up rate down Reply

if the government gets too greedy with MS they could jump right across the border - Canada would love to have them...

September 09 2013 at 10:37 AM Report abuse rate up rate down Reply

Windows 7 is driving me up a wall after a computer repair outfit had my computer and removed XP. I was getting used to everything on it, and could find anything. Now I don't even know if I can turn it on.

September 09 2013 at 5:33 AM Report abuse rate up rate down Reply

Microsoft taking on Nokia Phones is absolutely nuts. The Blackberry is far more advanced and a lot better phone, and their encryption is the best. Nokia was about to go down the tank as a phone maker and be assured that many employees are going to get canned. Microsoft has been behind the curve for years and the PC market is going no where, and Nokia is dead. You betcha there will be massive layoffs.

September 08 2013 at 11:43 PM Report abuse rate up rate down Reply

Oh boo hoo!....What a bunch of whiny babies.

September 08 2013 at 11:33 PM Report abuse +1 rate up rate down Reply

I am starting to think that there is something wrong with me. I happen to like Windows 8.

September 08 2013 at 9:54 PM Report abuse rate up rate down Reply

Windows 8 was a bungled attempt to put windows on smart phone. It was and is still lousy. Anybody know when 8.1 will be available?
Microsoft had the attitude they could do no wrong when it came to software. Turns our the smart phone makers never heard about that.

September 08 2013 at 8:41 PM Report abuse rate up rate down Reply

whomever designed windows 8 should be canned.

September 08 2013 at 8:28 PM Report abuse rate up rate down Reply

I wonder why no one has asked Gates of His thoughts on this? I know he stepped away from the company but it's still his company. He still holds controlling percentage of stock. If he returned it would send both confidence and the stock price to new all time highs.

September 08 2013 at 2:30 PM Report abuse rate up rate down Reply