Rory Cellan-Jones

Tech industry gloom

  • Rory Cellan-Jones
  • 22 Jan 09, 17:50 GMT

It's been a dreadful 24 hours for companies in the technology industry - with just a couple of exceptions. Microsoft, Sony and Nokia have all announced poor results. The tech giants who appeared confident six months ago that they would ride out a recession are now rushing to blame the global downturn for their individual problems

Windows logosMicrosoft says 5,000 jobs are going worldwide in departments ranging from HR to IT. This is the first time in its history that the company has cut its workforce (other than a bit of natural wastage).

The cuts follow an 11% fall in net profits, and Microsoft blames "the further deterioration of global economic conditions". So how did that make itself felt? Microsoft had been expecting the PC market on which it depends for Windows revenues to grow by more than 10%. Instead it was flat, with a fall in sales of desktops only partly offset by the surge in netbook sales.

Steve Ballmer is not underplaying the seriousness of the situation - he told analysts on a conference call that the economy was "resetting", and he didn't expect a quick rebound. Hard-pressed consumers who couldn't afford to refinance their homes weren't going to rush to buy PCs.

He also came out fighting, saying that Microsoft had come from a zero share of the netbook market to 80%, and suggested that customers would look far more critically at the kind of price premiums that they paid for a Macintosh compared with a PC.

Nokia also had some chilling news for the whole mobile phone industry. This was not so much a 69% fall in profits as its forecast that the global handset market would shrink by 10% in 2009 - this in an industry which has had nearly a quarter of a century of continuous growth, apart from a small fall back in 2001.

Nokia saw sales of its own handsets fall around the world. In China sales were down 36% compared to the same quarter in 2007. With companies pinning their hopes for growth on developing countries, this is very scary.

Sony appears to be in an even grimmer position. It had already announced job cuts and warned of a record loss this year. The company is keen to blame the strong yen for its woes, but it's clear that it also has problems competing in some key product areas. Its TV division keeps losing money, and the PlayStation 3 has been bested by Nintendo's Wii and by the Xbox 360.

The idea was that gamers would pay a premium for a console which was technically more advanced than its rivals. That strategy was already in question and as the recession hits consmer spending it looks even more dubious.

So amidst this gloom who is still prospering? Well, Apple of course as we mentioned earlier, though I still think there's a question over whether consumers will carry on paying a premium for its products through the recession. Another business defying the gloom is Britain's Autonomy, a database-search company which more than doubled its profits in the last quarter - and promptly announced it was spending $750m buying another software firm.

This is not a great time to be running a technology company - but for just a few, it's a chance to grow bigger while their rivals hide under the table and wait for the recovery.


  • Comment number 1.

    No mention of IBM? Does that spoil your story?

  • Comment number 2.

    Please. You are reporting as the BBC.
    You could at least pretend not to be so Apple biased.

    Other reporters worldwide found huge holes in Apples reporting. Indeed, quite a few have revealed some interesting tricks by Apple to control the press over the last few years.

    Reality: Apple's PC market share is less than 3% (under 1% in the UK). iPods have performed well, but are falling. iPhones haven't touched Nokia's market share or more surprisingly Windows Mobile market share (20million units).

    Now how about media coverage that reflects this use, rather than media lovies obsession with all things Apple.

  • Comment number 3.

    Very scary times. I work for vodafone and although my department hasn't been closed people are already being moved around to other departments within the company.

  • Comment number 4.

    Microsoft has an IT department?!!?

  • Comment number 5.

    The PS3 may be more advance than the either the Wii or 360 but it has yet to produce a game that really pushes the technology to the extreme or could not be play on the xbox 360. It also lacks good, console specific games so was doomed to failure even if the recession did not happen.
    please when talking about computer games at least gain a working knowledge from somewhere

  • Comment number 6.

    All of which makes Apple's reporting doubly impressive (despite what commenter BagEmk seems to misguidedly think). Market share means very little, it's all about profit and cash in the bank. With $28Bn in the bank, perhaps Apple could actually become one..

  • Comment number 7.

    Microsoft's problem is unique. The main reason why it is suffering is because some of its software has been so good, nobody can justify the expensive of replacing it. It tried to change its business model to suit; by offering business subscriptions to its latest software). But those that tried it either found it too expensive, felt the old software still met business requirements, or in radical cases found that the free open source alternatives were as good.

    Vista hasn't helped. It was too radical for business yet probably not radical enough for consumer use. Windows 7 looks like a great white hope, but it looks more like the business users will benefit, but the consumer will not, as it offers better performance and easier security, but not a lot else over Vista. When business picks up (when businesses throw out Windows 2000 based computers as they literally fall apart), it will be a success, but nowhere near Windows XP or 95.

    Apple and Nintendo on the other hand are having great times. Both companies have polices that are just as tied-in as Microsoft (DRM etc...), but the tailor their product directly to their customer by offering value add rather than everything in one box. The products don't necessarily have cutting edge technology, but they think of the user first and do the geeky bits afterwards. The result is a product that rocks!

    The second a cheap, practical and stylish webbook comes out in the next 12 months that offers touch screen and ease of use as standard, if Microsoft hasn't got its name on it, they surely will be soon finished in the consumer market. Another reason to worry about Microsoft shedding jobs today.

    Thing is, Apple and Nintendo are very nearly there.

  • Comment number 8.

    #1 No mention of Oracle either. Oracle took over eight companies in 2008, hardly a sign of "Tech Industry gloom there" .

  • Comment number 9.

    I'm disappointed that this journalist omits to mention IBM's excellent results. IBM are #2 software company and their results published yesterday show that IBM's software business grew revenues up 3 percent, up 9 percent adjusting for currency; pre-tax income up 15 percent. This is just sloppy journalism, it shows a lack of knowledge of the IT industry. Could it be that mentioning IBM would weaken his point ? Why not give a more balanced view.

  • Comment number 10.

    MS is still a very profitable company, sales projections are 'flat' as opposed to declining, they still have billions in reserve in the bank. And yet they feel the need to lay-off staff?

    IBM may have posted great results, but they are still laying off staff, some 16,000 according to the rumour mill.

    Compare that to the small business owner interviewed the other day who said she would rather sell her Porsche and take a pay cut than lay-off a single member of her staff.

  • Comment number 11.

    @BagEmk Last figures I saw put Macs at 10% market share and increasing. They are also the single largest seller of laptops which is the fastest growing sector of sales. They will only get bigger, deal with it.

  • Comment number 12.

    Apple's desktop/laptop global market share is still less than 5%. Nor are they the single biggest vendor of laptops. IDC and Gartner's sales figures are quite clear on this.

    They do better in the US and I don't think it's unreasonable to assume they have 10-15% of the domestic market there, however they remain a minority platform and, frankly, that's the way it will stay unless they open up OS X to third party OEMs. However, this compromises their business model - which is a very succseful one - so I don't see that happening.

    Microsoft do need to trim their workforce and they do need to seriously evaluate their product portfolio. The Windows and Office divisions will do fine and provide stable income, server growth looks strong and WinMo looks to be doing OK and can only get better (20 million licences sold in 2008 with a duff UI that needs the manufacturers or SPB to skin it to be acceptable to the consumer is pretty damn good) however I remain unconvinced by the Xbox 360, Zune and, in particular, their online services division.

    Steve Ballmer is facing a challenge here and needs to demonstrate he can take the company forward. If he cannot do so within a reasonable timescale then the board may have to consider other options.

  • Comment number 13.

    Microsoft's cost of sales are such that a further 20% decline in revenue will require another 20,000 plus layoff. Not much in 2009 can stop that happening. This could create a crisis within MS that could lead anywhere...not least mass product division closures.

    At the very least, we are going to see the socialist orientated free OS's like Linux begin to take huge market share from MS through '09 and '10. Corporations who have the skill base to use them will happily jump on the zero cost industrial enterprise solutions that Linux offers.

    Apple will, as ever, remain unaffected - content with the top end 10-20% of the market. It's beautifully engineered hardware integrated uniquely in a way no other company can with it's exquisitely designed software will continue to the the best solution for those who can both afford it and recognise it's inherent advantages. Put simply there will always be people with enough money and sense to buy the best.

    Considering that Apple are continuing to invest billions in R&D when all other companies are trimming back I think that at the end of '09 the technology gap between Apple and the rest of the tech world will be undeniable. Snow Leopard's advanced multi-core 'Grand Central' technology (and Open CL) alone will be make it an irresistible force.

    Windows 7 simply being the fixed 'Vista' release that should have been out in 2007.

  • Comment number 14.

    "At the very least, we are going to see the socialist orientated free OS's like Linux begin to take huge market share from MS through '09 and '10."

    No we're not. Sorry but it's more complicated than that and until Linux offers a single unified desktop version with enterprise level support it's a pipe dream.

    As for Apple, globally they won't approach 10% as their business model doesn't support mass market outwith their target sector.

  • Comment number 15.

    Actually Sony is in good shape with the PS3, it's feature set is vastly superior to the other consoles, the platform exclusive games are too, and it offers far for value for money than the others.

    Most people I know that bought a Wii, regret it, or it's in the cupboard covered in dust sat next to monopoly waiting for Xmas, most people I know with a 360 are looking at 2009 game lineup and wondering when something worth playing is coming along (or when their console will break again).

  • Comment number 16.


    MGS4 would never be possible on the 360, and Killzone 2 is due out next month, which wont ever be possible on the 360 nor.

    There, just blew 2 big holes in your argument. Maybe you should follow your own advise and 'at least gain a working knowledge from somewhere'

  • Comment number 17.

    If the tory plans of opening up government IT contracts comes to fruition, then it'll be a fantastic time for the IT sector (or at least for smaller companies) in 2010.

    Previously the government (both tory and labour) would only consider massive corporations for government IT projects, those corporations would then charge 100s of millions for something which could easily be done for 1 million by a smaller company.

    Government waste? Where can they save the money? Look at IT; they could save 90% of the budget overnight if they used smaller companies and open source.

    Labour won't like that though; they like the idea of massive corporations charging the tax payer billions when it should only be in the millions. Labour prefer waste; they like to keep tax levels high so they can help justify their own existence.

  • Comment number 18.

    7 and 13. I hope your comments on Windows 7 are at least based on the use of the OS.

    My points are:

    1. I have a multi-booting system and Vista is second only to Ubuntu in boot up and reliability. Vista was "fixed" through service pack 1 and Windows 7, although using the backbone of Vista is a new product with new features. Implying Windows 7 is update of Vista is in essence correct but this alone does not make it a bad product. The new Ford Focus is based on the old one. The VW Sirocco is based on the VW Golf does this make it any less a new model in your eyes? Diet coke is based on normal coke.... The list goes on...

    2. I have downloaded and used the Beta version of Windows 7 and I like it. I plan on using it when it is released.

    3. Apple have just patented finger gestures on a touchscreen. What will companies be allowed to patent next? Verbs? Nouns? Individual letters? Anyway with this latest patent Apple will probably keep propering by charging every mobile device maker money to make squiggle finger gestures on their devices.....


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