News

Ballmer Memo Aimed at Wall Street, Employees

• By Scott Bekker
• 07/07/2004

With his e-mail Tuesday, Ballmer sought to show investors and Microsoft's 57,000 employees that he is still upbeat about the company's future. He predicted the number of PCs, the key driver for Microsoft revenues, which come mostly from Windows and Office, would grow from 600 million today to 1 billion by 2010.

"Will we be first with important innovations? Will process excellence lead to greater ability to make an individual difference? Will our focus on costs hurt employees personally and will it hinder new investments? Will we grow and will our stock price rise? Will the PC remain a vital tool, and will we remain a great company?" Ballmer asked rhetorically. His answer to all of his own questions: "Yes."

But in explaining his optimism, Ballmer defended recent HR decisions that have depressed employee morale. And his e-mail promised ominously that he and Chief Financial Office John Connors are looking for more areas to cut an additional $1 billion in expenses by June 30, 2005.

The e-mail at the end of Microsoft's fiscal year is critically important for the company -- Wall Street has been looking for cuts at Microsoft where growth in expenses has outpaced growth in revenues for three years in a row and the stock price is stagnant. It is also necessary for Ballmer to get employees at Microsoft to understand the hard facts behind apparently miserly actions like reducing benefits and stock options at a company with a $56.4 billion cash hoard.

Unlike Bill Gates' famous Trustworthy Computing memo in 2002, however, this memo has less effect on IT professionals and managers who rely on Microsoft products. When Gates decided to realign the company to prioritize security and privacy, it meant product schedules were ripped up and promised features were rethought. Those internal actions at Microsoft had major ripple effects on IT planners.

Ballmer's e-mail contained no blockbuster decisions that affect the roadmap. In fact, he reaffirmed the central importance of Longhorn, the code-name for the next version of Windows. That project, which is slated for 2006 or later, involves about 16,000 employees. He emphasized how Longhorn would bring in long-term revenue growth at Microsoft, rather than a one-time influx of cash. He and his spokesman also clarified that the cuts would not involve Microsoft's hefty R&D budget, no layoffs are coming and hiring will continue. Instead, Microsoft hopes to get savings from employee benefits reductions, unifying marketing and advertising across business units and consolidating outside suppliers used for event planning, direct mail and other customer-related activities.

If Ballmer's e-mail backfires -- or just isn't persuasive enough -- and employee morale continues a downward trajectory, product quality could suffer. That would affect IT. High salaries compared to the rest of the industry have never been a motivator for Microsoft employees, although Ballmer has taken steps to raise salaries. Microsoft employees are reportedly starting to look for other jobs as they lose cheap stock options, pay more for their health care and become frustrated at an inability to make a difference inside an increasingly corporate environment. To add insult to injury, Ballmer has acknowledged that he's taking a hard look at Microsoft's vaunted free soda.