Internet giants cut back but hope for mobile boost
Published: 26 January, 2009
The big internet players are certainly not immune to the mobile downturn, as results from Microsoft and Google indicated at the end of last week. Microsoft suffered an 11% drop in net income and admitted to weakness in its Entertainment and Devices Unit, which covers Windows Mobile, Zune and Xbox, and which will bear the brunt of the first wave of cutbacks.
Microsoft said it would make the deepest job cuts in its 34-year history after announcing poor second quarter figures. It will axe up to 5,000 positions, or 5.5% of the total, over 18 months, mainly in R&D, sales and marketing, finance, administration and IT. The aim is to reduce annual operating expenses by $1.5bn and cut capex in fiscal 2009 by $700m. A few thousand jobs will be added in strategic areas like search, as Microsoft looks to enhance its position in web services, fixed or mobile.
Its net income for its Q2, which ended on December 31, was down 11% year-on-year to $4.17bn and CEO Steve Ballmer warned that there would be no "quick rebound" and some shrinking of the economy could be permanent. He said: "We are certainly in the midst of a once-in-a-lifetime set of economic conditions.... Our model is things go down, and then they reset." Revenue was up just 2% to $16.63bn, and shares fell by nearly 12%, the largest drop since November 2000.
The main problem was a flat PC market, where Microsoft had expected 10% to 12% growth in the quarter. This drove Windows client revenue down by 8%, accentuated by the shift from full scale PCs to netbooks, some of which run Linux.
Meanwhile, Google posted a 68% drop in Q4 profit, though sales remained strong for the core web services, search and advertising business, and recent cost cutting efforts helped margins. Net income was $382m on revenues up 17% year-on-year to $5.7bn - but down 31% on the third quarter.
"Search query growth was strong, revenues were up in most verticals, and we successfully contained costs," said CEO Eric Schmidt in a statement. "It's unclear how long the global downturn will last, but our focus remains on the long term, and we'll continue to invest in Google's core search and ads business as well as in strategic growth areas such as display, mobile, and enterprise."
Mobile remains the key focus for growth, even during the downturn. "More people are searching from mobile phones. Our objective is to make search from a mobile phone as fast and easy as possible," said senior VP of product management Jonathan Rosenberg, claiming the first Android phone, the G1, had "done very well" and generated billions of page impressions for Google. He added: "We think the Android numbers will start to speak for themselves, particularly this year ... we are very optimistic about Android."
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