Just In.. "Microsoft is Firing"
Oh God! I must be dreaming. No posts for more than three months and then suddenly two posts in a day. This was the day
Well, our News Channels as well as Business News Channel might be slow in reporting this news (after all the source is same for me and them, the only thing is that I probably understand the implication this news could have on several other things) but the news is just in that "Microsoft is Firing". When TCS gave pink slips to 700 (about 0.7% of total workforce) employees, it became a big news and IT stocks lost the favor from investors, this news is surely going to have an impact. Perhaps a bigger one.
In a major development today Microsoft announced that it's going to downsize about 5% of it's workforce (5000 employees) to streamline costs. What is more alarming is that the company has also decided to eliminate merit-based pay rises, cut travel costs and reduce the use of contractors to increase the profitability. And to top this all, it's happening with Microsoft, a company which everyone believed will stand tall as computers are slowly becoming integral part of everybody's life and the demand for which will grow even during tougher times. Well, it's happening and it has just begun.
What does this mean for the IT, ITES industry?
The reason behind this desperate measure is to shore up the profitability as the company is able to see the slump in the global demand for the sales of PC or Laptops (bad news for Dell, Compaq, HP, Lenovo and millions of supply chain partners like vendors, resellers and distributors). All these manufacturers will start bundling their hardware with Free or cheaper open source softwares to cut their costs further deepening the slump in the sales of Microsoft products. Sensing this threat, Microsoft is trying to take appropriate steps by right-sizing the workforce.
“Economic activity and IT spend slowed beyond our expectations in the quarter,” Chief Financial Officer Chriss Liddel said in the statement. “We acted quickly to reduce our cost structure and mitigate its impact.” (Source - Bloomberg).
In this statement lies the clue for Indian IT/ITES industry. The slowing down of IT spend is alarming. Nortel which use to be one of the top 10 client of one of the top 5 Indian ITES company filed for Bankruptcy protection on a cold Wednesday morning. Other clients are either delaying their budgets or canceling the existing contracts. Clients are asking the companies to renegotiate the deals and the day is not far when they will even ask to halt the development or off-shoring to preserve cash.
The top 3 Indian IT companies have reported growth despite of the downturn but there is a sense of fear in the reported numbers. For the first time in six years all these companies are speaking of caution. The way Microsoft has reacted today, I am sure it will instill a sense of panic and will send a shock wave among the employees, stock holders and analyst all over the world. After all Microsoft was supposed to be above everything.
Let's see if our IT companies also follow in the foot steps of the big brother or they go slow and adopt the wait and watch policy which will mean avoiding the extreme step of retrenchment and adopting other measures like incentive cuts, salary cuts etc. It's surely going to be a tough time ahead. This year doesn't seem to be better than the last one. Anyways, let's pray for the 1400 of Microsoft Employees would loose their job tonight.
Jo hona hai hoga, for the time being let's believe in our Prime Minister's assurance that India is relatively insulated from this crisis (which he is repeating along with the ex Finance Minister Mr. Chidambaram since the stock market was at 22000 levels about one year ago ). I don't know how many of Indians will be among those 5000.
(As I finish writing this post, Dow is down by 3%, Nasdaq fell by 4% while S&P 500 also shed some 3% from the Yesterday's gains. Microsoft has lost 10%. Infosys ADR has lost some 5%, Wipro has lost 10%, Cognizant by 5% and IBM has lost some 7% by now. )
Well, our News Channels as well as Business News Channel might be slow in reporting this news (after all the source is same for me and them, the only thing is that I probably understand the implication this news could have on several other things) but the news is just in that "Microsoft is Firing". When TCS gave pink slips to 700 (about 0.7% of total workforce) employees, it became a big news and IT stocks lost the favor from investors, this news is surely going to have an impact. Perhaps a bigger one.
In a major development today Microsoft announced that it's going to downsize about 5% of it's workforce (5000 employees) to streamline costs. What is more alarming is that the company has also decided to eliminate merit-based pay rises, cut travel costs and reduce the use of contractors to increase the profitability. And to top this all, it's happening with Microsoft, a company which everyone believed will stand tall as computers are slowly becoming integral part of everybody's life and the demand for which will grow even during tougher times. Well, it's happening and it has just begun.
What does this mean for the IT, ITES industry?
The reason behind this desperate measure is to shore up the profitability as the company is able to see the slump in the global demand for the sales of PC or Laptops (bad news for Dell, Compaq, HP, Lenovo and millions of supply chain partners like vendors, resellers and distributors). All these manufacturers will start bundling their hardware with Free or cheaper open source softwares to cut their costs further deepening the slump in the sales of Microsoft products. Sensing this threat, Microsoft is trying to take appropriate steps by right-sizing the workforce.
“Economic activity and IT spend slowed beyond our expectations in the quarter,” Chief Financial Officer Chriss Liddel said in the statement. “We acted quickly to reduce our cost structure and mitigate its impact.” (Source - Bloomberg).
In this statement lies the clue for Indian IT/ITES industry. The slowing down of IT spend is alarming. Nortel which use to be one of the top 10 client of one of the top 5 Indian ITES company filed for Bankruptcy protection on a cold Wednesday morning. Other clients are either delaying their budgets or canceling the existing contracts. Clients are asking the companies to renegotiate the deals and the day is not far when they will even ask to halt the development or off-shoring to preserve cash.
The top 3 Indian IT companies have reported growth despite of the downturn but there is a sense of fear in the reported numbers. For the first time in six years all these companies are speaking of caution. The way Microsoft has reacted today, I am sure it will instill a sense of panic and will send a shock wave among the employees, stock holders and analyst all over the world. After all Microsoft was supposed to be above everything.
Let's see if our IT companies also follow in the foot steps of the big brother or they go slow and adopt the wait and watch policy which will mean avoiding the extreme step of retrenchment and adopting other measures like incentive cuts, salary cuts etc. It's surely going to be a tough time ahead. This year doesn't seem to be better than the last one. Anyways, let's pray for the 1400 of Microsoft Employees would loose their job tonight.
Jo hona hai hoga, for the time being let's believe in our Prime Minister's assurance that India is relatively insulated from this crisis (which he is repeating along with the ex Finance Minister Mr. Chidambaram since the stock market was at 22000 levels about one year ago ). I don't know how many of Indians will be among those 5000.
(As I finish writing this post, Dow is down by 3%, Nasdaq fell by 4% while S&P 500 also shed some 3% from the Yesterday's gains. Microsoft has lost 10%. Infosys ADR has lost some 5%, Wipro has lost 10%, Cognizant by 5% and IBM has lost some 7% by now. )
1 comment:
nice to read ur blog after a long time...so keep blogging...
Yeah lets see what will happen wid IT industry...hope 4 the best..
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