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Microsoft Layoffs: Insane M&A Frenzy Leads To Next Jobs Crisis

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Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

Global M&A volume in the first half was the highest since 2007. It was led by the largest corporations, including GE, that borrowed for nearly free thanks to global ZIRP, to load up their balance sheet with spending money. Deal volume in the first half soared 75% to $1.75 trillion, closing in on the record set in 2007 of $2.28 trillion.

What was “notable,” according to Gregg Lemkau, co-head of global M&A at Goldman Sachs, was “the blue-chip nature of the companies who are doing the acquiring.”

What was even more notable was that the Great M&A Frenzy of 2007/2008 was followed by the Great Jobs Crisis that kicked off in earnest in 2009.

Deals are sold to investors on the basis of “creating value” with terms like “efficiencies” and “synergies” – code words for cost cutting and mass-layoffs. M&A jockeys like HP have lost sight of their business model and can only grow revenues, if at all, through endless acquisitions. Followed by layoffs. Sometimes they’re months apart, sometimes years. HP, after 11 quarters in a row of falling revenues, is still announcing waves of layoffs. A friend of mine, who came to HP via an acquisition of course, survived two waves of layoffs before the financial crisis, but was swept up in the third. Countless waves later, HP just announced another 16,000 layoffs on top of the 34,000 it had announced earlier.

Acquisitions, layoffs, and cost-cutting are the simplest things to do for a CEO, as opposed to inventing things and boosting sales organically, which is hard. And analysts eat them up. They call the dizzying expenses “non-cash charges” to be ignored, and they too decorate their pronouncements with “efficiencies” and “synergies.” Hence, a wave of acquisitions is invariably followed by cost-cutting, destruction of productive capacity, and layoffs.

Last September, Microsoft agreed to acquire Nokia’s mobile-phone business and promised $600 million in annual cost savings – the efficiencies and synergies – within 18 months. Now their meaning is becoming clear: “people who asked not to be identified because the plans aren’t public” told Bloomberg that the company is planning what might be the biggest wave of job cuts in its history.

Exact numbers weren’t mentioned, but Microsoft’s largest wave of layoffs happened during the financial crisis when it axed 5,800 people. Now, Satya Nadella, CEO since February, is putting his stamp on the company. Last week, he sent a professionally produced and designed memo to his “team,” the lucky ones who would be able to keep their jobs. It said in 3,000 words that big changes were coming to Microsoft. What it lacked in specifics, it made up for with glitz.

Nothing is off the table in how we think about shifting our culture to deliver on this core strategy. Organizations will change. Mergers and acquisitions will occur. Job responsibilities will evolve. New partnerships will be formed. Tired traditions will be questioned. Our priorities will be adjusted. New skills will be built. New ideas will be heard. New hires will be made. Processes will be simplified.

With this memo, he wanted to “galvanize employees around what our soul is,” he said in a phone interview. That was a warning. But he refused to admit that the company was planning layoffs.

Layoffs are inevitable after acquisitions. Wall Street demands them. They’re used to rationalize the acquisitions in the first place. The lexicon of corporate euphemisms for axing people includes henceforth Nadella’s two gems, “Job responsibilities will evolve,” and “Processes will be simplified.”

A few M&A deals here and there may not have any measurable impact on the global economy though the layoffs still occur a few months or a year or two later. But when corporate mastodons buy each other out and merge with each other in relentless mega-waves, the resulting cost-cutting and layoffs will have an impact. And there have been 17,698 deals in the first half of this year alone!

But the delays between the deal announcement and the moment when employees are actually shown the door can be significant. Deals take time to complete, and nothing can happen until they’re complete. In complex deals, this can stretch to a year. When governments get involved, it can take even longer. Once the deal is complete, employees often stay on for a while. So the time from the peak of the M&A frenzy to rising unemployment claims can be so long that it’s all too easy to obscure the link between them.

Wall Street’s financial engineers and corporate CEOs alike relish brandishing terms like “synergies” and “Job responsibilities will evolve” to dazzle investors with hope and boost stock prices. But they want to make sure that the M&A frenzy that makes them and the players around them so rich doesn’t get blamed for a jobs crisis a year later. And the corporate lapdog media gush about “Merger Monday” and repeat the M&A lingo without pointing to the large-scale job destruction that the estimated 35,000 global deals this year will inevitably entail.

But the frenzy is starting to show up on the Fed’s radar. Chair Janet Yellen poked with her dull needle at bubbles in momentum stocks and leveraged loans, and threatened to end ZIRP sooner, and more rapidly “than currently envisioned.” Which would end the M&A frenzy. Fasten your seatbelts. Read…. Yellen Warns Investors

 

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Thu, 07/17/2014 - 12:52 | 4968431 Bemused Observer
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Just once it would be nice to hear a large company say something like, "We considered laying off 18,000 workers, but decided not to take this easy route to cost-cutting. Instead, we've decided to retrain these employees, and retain them for use in our other divisions. We've also provided guidance for investors that emphasizes our long-term goals as opposed to the prevailing short-term thinking that dominates the corporate view these days."

I would patronize that company, and "sell" them to anyone within earshot. I'd even go door-to-door like a Jehovah's Witness for such a company.

Thu, 07/17/2014 - 11:42 | 4967684 kurt
kurt's picture

Big Telecom did this long ago. I remember when we were "bought" and a bunch of ill fitting suits came from Hicksville, Texas. During the big shakeup and blending of corporate culture, we had this Napoleonic a-hole former sports "star" trying to motivate us and, I swear this is true, he said, "We gotta get out there and sell more of our PRODUCTSEZ AND SERVICES." He said it that way every time, until he got caught groping a new hire in his cubical and was fired. Many, many, many, layoffs followed. We heard all the cloaked language then. 

Thu, 07/17/2014 - 11:26 | 4967579 alexcojones
alexcojones's picture

I like this writer, Wolf R.

Reminds me of another guy named Wolf.

Wolfgang Halbig.

Wolf has a lot to sink his teeth into here.

Thu, 07/17/2014 - 10:52 | 4967392 alexcojones
alexcojones's picture

I would NOT buy a Microsoft product if my life depending on it.

BTW, Google Bill Gates house on Lake Washington Seattle. Couple Navy Seals and presto, you have yourself the MS man.

Not saying do it, but I windsurfed by there once and thought of it, easy peasy.

Thu, 07/17/2014 - 11:44 | 4967754 kurt
kurt's picture

Clearly you are on the watchlist.

Thanks for making him buy the whole lake, ahole.

Thu, 07/17/2014 - 10:36 | 4967327 DullKnife
DullKnife's picture

Democrat Leadership want millions of low education, low income, "gimme free sh*t" illegals (or legals) here as they will vote Dem for the free sh*t.

Republican Leadership want millions of low education, low income illegals (or legals) because the U.S.Chamber of Commerce (Big Business) wants cheap labor.   So instead of going all the way to China to find cheap labor, they can have cheap labor here at home.

Sure be nice if regular Americans had some representation in DC also.

 

Thu, 07/17/2014 - 10:26 | 4967275 q99x2
q99x2's picture

Arrest Janet Yellen for financial terrorism. End the FED and secede from Washington D.C. I vote to be a part of the United States of Ruissia China and Turks and Caicos. Down with the cloven hoofed queens.

Thu, 07/17/2014 - 10:05 | 4967183 rsnoble
rsnoble's picture

Wallstreet loves M/A!

Thu, 07/17/2014 - 11:15 | 4967500 HardlyZero
HardlyZero's picture

Risky Business.

Thu, 07/17/2014 - 11:43 | 4967742 Jumbotron
Jumbotron's picture

Getting to be the ONLY business.

Thu, 07/17/2014 - 09:12 | 4966894 pupdog1
pupdog1's picture

Happy H1-b Hadjis are having a hell of a hootenanny in Hyderabad, my goodness my gracious me.

 

Wed, 07/16/2014 - 19:20 | 4964899 starman
starman's picture

Rip USA its been... well interesting.

Wed, 07/16/2014 - 18:23 | 4964671 tvdog
tvdog's picture

This is the way the Fed's printed money is going to find its way into the larger economy. Somebody is getting rich off these mergers and acqusitions, and some of that money will finally be spent. Hang onto your hats.

Wed, 07/16/2014 - 17:22 | 4964424 ExploitedCitizen
ExploitedCitizen's picture

I've seen this song and dance before.

Out with the whitey's who cost too much, in with the brownies who we can pay peanuts and ship home anytime.

I hate Bill Gates and fuck windows.  I''m glad everyone is dumping that shitty OS.

Wed, 07/16/2014 - 17:01 | 4964313 pashley1411
pashley1411's picture

The Borg are kind of high on efficiency, as well.

Wed, 07/16/2014 - 16:00 | 4964070 pitz
pitz's picture

The real deal here is that of dumping qualified Americans and replacing them with the new CEO's favourite nationality, Indians.  On H-1B visas. 

Wed, 07/16/2014 - 15:52 | 4964041 kchrisc
kchrisc's picture

The real story will be when Legend and other Asian PC manufacturers announce that they will no longer automatically ship Windows on new PCs. They will switch to a Linux version of their own configuration.

Short Micro$oft, as the ice under their feet is thin and spring is on the way.

Wed, 07/16/2014 - 18:59 | 4964818 kchrisc
kchrisc's picture

And there you go.

Good stuff and links.

 

By the way: "We’re sorry, your copy of Windows has failed 'Genuine Advantage' validation. You may be the victim of software counterfeiting. Please click here to find out how you can send Micro$oft more money or have your copy of Windows hobbled."

Thu, 07/17/2014 - 09:59 | 4967125 Jumbotron
Jumbotron's picture

I have used Fedora (Red Hat) Linux, openSUSE Linux ( the community version is still a German distribution but the corporate version is owned by Novell of Netware fame), Ubuntu, Kubuntu (uses the KDE GUI which is a lot like Windows 7 interface) and now Linux Mint with the KDE GUI.

Linux Mint is based on Ubuntu which itself is based on Debian.....which is widely considered the best engineered of all the various Linux distributions.  What make Linux Mint outstanding is it's "works out of the box with minimal to no tweaking" experience.  The default GUI (Cinnamon)  is an interface that is modeled after GNOME (which is what Red Hat uses).  And Gnome is modeled after Mac OS X.

So.....if you want a Mac like experience go with the default Linux Mint version with Cinnamon.  If you like a more Windows-centric flavor.....go with Linux Mint KDE version.

Although I LOVE the Mac like experience....I have found too many issues with Gnome on my various testings of Linux.  Linux programs depend on a lot of different libraries of code.  Unfortunately they fall into two camps.  GTK+ mostly for GNOME and QT/C++ for KDE.  It seems that even if you load a QT/C++/KDE based program in GNOME with all the dependencies needed....sometime GNOME based Linux distributions don't play nice with them like KDE based distributions.  And although I heard that the Cinnamon GUI in Linux Mint takes care of a lot of these issues....the truth is....what you will find in the corporate world that has gone over to Linux is either a GNOME GUI (Red Hat) or in Europe a KDE GUI either from openSUSE or Kubuntu (that's the K in KDE with Ubuntu Linux underneath).

But this is the great thing about Linux.  I experimented with ALL these distributions to find the one right for me.....for FREE.  I have found alternatives to just about EVERYTHING I and my family need that was once only found on Windows or Macs only.  Here's some great places to start finding great alternatives to Window or Mac based programs.  The best thing of all....most open source programs are cross platform.  So you can test them out on your Windows or Mac based computer before making the jump over to Linux.  Makes your migration MUCH easier and smoother.

http://www.linuxalt.com/

http://www.linuxappfinder.com/alternatives

http://www.osalt.com/

http://www.opensourcealternative.org/

http://alternativeto.net/?platform=linux

If you are concerned with Freedom in general....and Freedom when it comes to computing specifically.....Linux and Open Source are the ONLY way to go. 

Steve Ballmer famously said of Linux and Open Source that it's 'Communism".  No, asshole.....it's ANTI-FASCIST !

Thu, 07/17/2014 - 11:41 | 4967720 StychoKiller
StychoKiller's picture

Check out XFCE as a desktop environment.  I'm using Kubuntu myself, but that's only because the AmigaOS is still proprietary!

Thu, 07/17/2014 - 10:18 | 4967244 Crawdaddy
Crawdaddy's picture

Ballmer is still dedicated to killing innovation outside of MSFT's control.

http://www.catb.org/~esr/writings/cathedral-bazaar/cathedral-bazaar/inde...

Wed, 07/16/2014 - 20:06 | 4964034 bitterwolf
bitterwolf's picture

Synergies and efficiencies are a sign of the benefit of better and more ruthless use of state-of-the-art technologies and mission oriented organizational optimization( BTW, your better military organizations do the same) manifesting for the ultimate goal of more PROFIT. thatis  great for shareholders and the tax base(theoretically) of the territory where said organization has real property /employee presence.Not so great for creating/maintaining jobs (high/low wages) that encumber aforementioned efficiency gains. We see in USA the isssue of approximately 100 MILLION adults unemployed/underemployed(fuck doc. look for yourself) AND the USG collected almost 3 TRILLION USD in TAX(real $$,not borrowed) revenue this year. So, what does a GOVERNMENT to do with surplus population who do not contribute to greater (non-underground) economy? Spend money to retrain unemployed ( mucho BILLONS ) and rife with producing to many dental, diesel or computer technicians, who still remain underutilized. If USG( not a PRIVATE issue to resolve)does not address succesfully than you have a potential for violence and revolution.

Cheers

Wed, 07/16/2014 - 15:22 | 4963909 JRobby
JRobby's picture

Some stooge posted something the other day about banks "most favored customers" borrowing money at ZIRP for M&A not for CapX or headcount increase.

Forgot its name though. Jrobot or Jjerkoff, something like that.

Wed, 07/16/2014 - 15:20 | 4963882 angel_of_joy
angel_of_joy's picture

It couldn't happen to a better company. They are still following the "one on, one off" rule when it comes to Windows.

Wed, 07/16/2014 - 15:24 | 4963913 JRobby
JRobby's picture

Windows is a bag of shit

Thu, 07/17/2014 - 08:32 | 4966700 nathan1234
nathan1234's picture

LOL

Many holes in it.

And what's more the NSA loves and collects the shit coming from these holes as they  are crap too.

Birds of the same feather crap together

Wed, 07/16/2014 - 14:59 | 4963787 Jano
Jano's picture

It means, that MS is also a M&A candidate. Or they go bust. This is a sign of weaknes.

Expanding company with good products does not make such havoc.

Wed, 07/16/2014 - 17:10 | 4964360 Jumbotron
Jumbotron's picture

Look for them to do what they have always done.....swallow small fry companies for their "innovative" products because Microsoft has not innovated since the day they bought QDOS (Quick and Dirty Operating System)....

https://en.wikipedia.org/wiki/86-DOS

....and licensed by Microsoft to IBM so they could have an operating system for the first PC. 

BUT......look for Microsoft to break up.  With the rise of Google Docs and LibreOffice, everyone knows there is no need to pay a Microsoft tax on Office any longer.  They will break off the desktop side of the company (Windows and Office) from their mobile and entertainment (x-box) side of things.  They say they won't....they're lying.  The move is already underway.

 

Wed, 07/16/2014 - 18:49 | 4964768 tvdog
tvdog's picture

Nice analysis, except that Microsoft's mobile business is in the toilet also. The only thing Microsoft makes nowadays that's any good is the Xbox - and it comes with a camera to spy on you in your own home.

Thu, 07/17/2014 - 09:37 | 4967014 Jumbotron
Jumbotron's picture

Now that Microsoft has bought Nokia and killed Nokia Android phones.....look for Microsoft to consolidate their X-Box brand to their phones and tablets as well.  Windows Mobile / CE / Crippled.....is already in the X-Box as well as their phones and tablets.

Once again....Microsoft is following in Apple's footstep by DE-emphasizing the desktop like Apple is doing with Mac OS X and going balls to the wall with gadgets....in the case of Apple....iOS. That's where the constant upgrade cycle is still happening ......which means a steady income stream and profit.

Wed, 07/16/2014 - 14:47 | 4963715 Comte d'herblay
Comte d'herblay's picture

My good friend, Budgie Twitters, told me that I need to stop reading and writing about the moves our institutions are have been making to reduce the middle classes to living in seedy, crime ridden trailer courts with the rest of the trash, I might just well put myself into an early pine box.

Budgie recommends instead that most of us begin to acquire or polish up our assassination skills, and begin to implement a reduction in CEOs. M & A lawyers, advisers, financial analysts and accountants.

Without the shedding of mucho blood the Tree of freedom is about to become winter deer browse.

Wed, 07/16/2014 - 19:28 | 4964930 pupdog1
pupdog1's picture

Budgie just called and told me that three drones are outside his house. Big ones, he says.

Wed, 07/16/2014 - 14:40 | 4963667 TeethVillage88s
TeethVillage88s's picture

Yes, this will be harder.

But cyclical too.

After a boom you have to go through reorganizations, cut the fat, look back at your core business, core strengths, maybe even clean up the book keeping and quasi illegal activity.

But mergers & acquisitions may

1) Suck the Value out of otherwise good businesses and result in more ruined companies
2) More Big Business in a Military Republic like ours with NSA Spying means less chance for reform, opposition to current government trends, fewer small strong business leaders, fewer independent leaders, fewer small businesses, more control by big government & big Corporations (control by few big Executives)
3) Maybe more people on Social Programs and less interest about this by the current public leaders
4) More Public Debt & Household Debt

Wed, 07/16/2014 - 14:35 | 4963650 pupdog1
pupdog1's picture

Gates and MSFT lead the way in replacing real employees with H1-B visa scammers.

It's MSFT and its horrendously poor quality products that needs to be replaced.

Wed, 07/16/2014 - 18:41 | 4964732 tvdog
tvdog's picture

People don't understand how the H1-B scam works. It goes like this:

1. Find an employee in India you want to hire.

2. Don't advertise the position, or advertise it in such a way that most Americans qualified for the position won't know about it.

3. Go out and solicit applications for the position from Americans you know are not qualified.

4. Take the applications to the INS and say, "See, we couldn't find any Americans qualified for the job."

5. Collect the H1-B visa and hire the Indian guy.

Thu, 07/17/2014 - 11:44 | 4967746 SoCalBusted
SoCalBusted's picture

6.  Indian guy knows that he needs to ride out the H1-B in order to get a green card

7.  Indian guy will work any amount of hours and do anything to stay on board

8.  See, Americans are lazy.

 

Wed, 07/16/2014 - 20:39 | 4965149 pitz
pitz's picture

Even the applications the firms do receive, they're usually very qualified individuals.  They simply get thrown in the garbage because they don't meet some trivial or nonsensical requirement.  Don't have 10 years of "experience" in Windows 8?  "not qualified".  Don't your experience for general IT in the health care industry?  "disqualified".  It goes on and on, with all sorts of bogus requirements in terms of 'experience'.  Even asking too much salary in a 'salary desired' box is grounds for disqualification. 

But as it stands, for H-1B's, they're not even required to prove Americans aren't available.  The government just gives them a free pass. 

Wed, 07/16/2014 - 19:26 | 4964924 pupdog1
pupdog1's picture

That, and plenty of corporate payola to congresswhores who keep upping the H1-B numbers.

Every Congresswhore who has supported more H1-Bs in any way needs to get their fat cigar-chomping ass booted out the door.

If 20% of the people were paying attention, this shit wouldn't be happening.

Wed, 07/16/2014 - 15:11 | 4963853 Seer
Seer's picture

And it STILL comes down to whether there's a market out there.  Wages dropping, unemployment rising, all leads to only one conclusion: there is no longer any way of generating growth (other than faking it through M&A)

The H1-B visa stuff was pretty much an automatic element in our path approaching the cliff: if none of it had happened it wouldn't have changed much of anything, perhaps might has sped up the collapse.  NOTE: not defending the "practice," just pointing out that none of it really addresses the fundamental issues of there no longer being growth available (lack of cheap physical resources).

Wed, 07/16/2014 - 14:43 | 4963692 TeethVillage88s
TeethVillage88s's picture

Poster child for planned obsolescence.

Complicated software that not only provides backdoors for NSA spying, but creates industry need for you to upgrade your computer and your software. Zeitgeist style capitalism.

Creates the need for more consumers each year and less value in the product so that consumption goes up.

Wed, 07/16/2014 - 14:13 | 4963548 Jumbotron
Jumbotron's picture

This is a sure sign of collapse.  This is not about the consolidation of markets because they are so healthy that it spawned so many players until it reached saturation.

This is consolidation due to dwindling resources.  Much of it the dwindling amount of discretionary dollars in people's pockets to buy the next version of iShit.  Also the dwindling natural resources which are driving up costs.  Plus.....you don't need as many people making shit.  That's why we have slaves in China.

Mergers and acquisitions in this day and age are a guidepost to the collapse.

Wed, 07/16/2014 - 16:17 | 4964143 Kassandra
Kassandra's picture

So, corporations are "people" and now they have a soul? Who knew?

Wed, 07/16/2014 - 18:35 | 4964718 tvdog
tvdog's picture

Interesting little tidbit: in 1776, there was no such thing as a corporation in America. The first corporation law was enacted in 1790 - and it placed an expiration date of one year on each corporation organized. When the year was up, the corporation would have to get its charter renewed, or it would cease to exist.

Flash forward to 2014, and corporations are people, except that they pay less taxes than regular flesh-and-blood people, and they live forever.

Wed, 07/16/2014 - 15:08 | 4963837 Nick Jihad
Nick Jihad's picture

Not arguing against the collapse, but I'm not sure that this is a sign of it. This has been going on in the computer industry for as long as I can remember. This reminds me of the '90s when Compaq was shedding employees that it had gained thru the DEC aquisition. The shoe was on the other foot, when HP acquired Compaq.

Wed, 07/16/2014 - 18:30 | 4964698 tvdog
tvdog's picture

I remember the HP/Compaq merger. HP used to make good stuff (I still have an ancient Laserjet that runs like a charm), while Compaq computers were always crap. After the merger, everything HP made was crap too.

Thu, 07/17/2014 - 11:46 | 4967785 SoCalBusted
SoCalBusted's picture

Had a Compaq laptop from 2001 that lasted 9 years.  They went to crap around 2004 when you could no longer use a philips head screw driver to replace the HD or upgrade te RAM.

Wed, 07/16/2014 - 20:41 | 4965154 pitz
pitz's picture

The company wasn't colloquially known as "Crapaq" in the industry for nothing, after all.  Not sure how they moved their stuff towards the end.  Bribes maybe? 

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