Microsoft layoffs: Netbooks sales are killing us

Overlooked in the Microsoft announcement about its layoffs of 5,000 people over the next 18 months is this startling revelation: The company's revenue decline is due, in large part, to the growth in the sales of netbooks.

In a statement, Microsoft announced that because of the economic meltdown and slowing IT spending, it will lay off 5,000 people. Overall it reported a 2% increase in revenue compared to the same quarter last year. It had a total of $16.63 billion in revenue for the second quarter this year.

While overall growth was 2%, Microsoft took a big hit with its client software, and a big reason for that was netbooks. Here's what the company said:

Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks.

That's an astonishing admission. It means that people are forgoing higher-priced laptops, and instead buying netbooks --- and many of those netbooks are powered by Linux. So Microsoft loses out not only on sales of Windows, but also sales of Microsoft Office as well. Estimates are that 30% of all netbooks ship with Linux.

This is all the more reason why Microsoft needs to ship Windows 7 quickly, and will most certainly do it before the announced 2010 ship date. Windows 7 has been designed to work with netbooks, and Microsoft hopes it will be a Linux-killer.

To see why I think that Windows 7 will, in fact, help beat back Linux, see my blog post, "Which is best for netbooks: Windows 7 or Linux?"

If you want to read the full Microsoft announcement about layoffs, you can get it here.)

Update: For more reasons why Microsoft is being hurt by netbooks, see my blog post, "More reasons netbooks are killing Microsoft."

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