Microsoft profit miss may be latest blow to morale

By Scott Hillis

SAN FRANCISCO - Microsoft Corp.'s share price may not be the only

casualty of the software powerhouse's surprise earnings miss.

It might also hit company morale, becoming the latest gripe of employees who

are already disillusioned with product delays and a once high-flying stock that

has stagnated for the past three years, analysts said.

"There are some folks who have been there for a long time and who will

resent the way things are being run as a bureaucracy. And maybe they were there

for the big stock run-up and they're seeing the stock not move now," said

Matt Rosoff, analyst with Directions on Microsoft.

"If you think things are not being run well, then yesterday will lend

credence to your arguments," Rosoff said.

Microsoft shares tumbled 11.4 per cent to $24.15 on Friday, their biggest

one-day drop in 5 years, a day after the company said earnings would be hurt by

increased spending to stay abreast of competition such as Google Inc.

A company spokesman had no immediate comment on employee morale.

Investors treated the move as the latest stumble by the Redmond,

Washington-based company, which last month said it would delay the release of

the next versions of its cash-spinning Windows operating system and Office

software package.

Minimsft, a popular blog run by a Microsoft employee who advocates a drastic

slimming-down of the company, lamented the results, exclaiming: "Yee-ouch!

Right in the kisser!"

Wryly remarking on the idea that Microsoft could eventually pull out of the

doldrums, the anonymous author wrote: "It is always just a few quarters

out. For what, the last five years?"

In the 1990s, Microsoft's lucrative stock options made its employees the envy

of the business world. Its launch of Windows 95 had touched off a stock rally

that minted in-house millionaires up through the collapse of the tech bubble in

early 2000.

At the start of 1995, the shares traded at about $4, and they doubled almost

yearly before they peaked just shy of $60 at the end of 1999.

Microsoft, stopped offering stock options in 2003 and now issues restricted

stock grants.

Granted, Microsoft has maintained its reputation as one of the most desirable

companies to work for, thanks to generous benefits, flexible hours and a

corporate campus nestled amid the Douglas firs and snow-capped peaks of the

Seattle area.

"Microsoft certainly looks after its employees, there's no question

about that. They're hiring, they're adding staff," said Jupiter Research

analyst Joe Wilcox.

"But it's hard to get excited sometimes when your company delivers

increasing revenue quarter on quarter, yet you read hype about Apple and their

products and they get all the buzz," Wilcox said, referring to Apple

Computer Inc., maker of the acclaimed Mac computers and iPod music player.

One commenter on Scobleizer, another widely read blog by Microsoft employee

Robert Scoble, raised the specter of a conspiracy.

"They don't want the stock to go up. Why? If the stock goes up, the

company risks losing more talent to retirement. It'll go back up when the

company has hired and built out the next era of employees to carry the torch on,

without the risk of losing them to early retirement."

Microsoft has grappled with the issue of declining morale before, most

recently last fall after the departure of several high-profile executives.

In an interview with Business Week magazine then, Chief Executive Steve

Ballmer boasted that 85 per cent of Microsoft employees felt proud to be at the

company, saying that number was "as high as it's ever been".

One anonymous commenter on minimsft probably wouldn't count himself among

their ranks, claiming to have sold five years worth of employee stock after the

earnings report.

"The press seems to be picking up on the fact that employee morale is

down. About freakin time! If the company doesn't invest in its employees, I

regret to say this but the future for any such company is grim."