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Saturday, March 10, 2001 - Page updated at 12:00 AM

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Cooling economy slows Microsoft

Seattle Times technology reporter

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Microsoft, which bolstered the state's economy in previous slowdowns, will scale back hiring over the next 18 months, its chief financial officer disclosed yesterday.

As part of a broad effort to cut costs, the company will limit its job growth to 5 percent or less from the current level, John Connors, senior vice president and chief financial officer, said during a US Bancorp Piper Jaffray investor conference at the Seattle Sheraton hotel.

"Given the economic climate and Microsoft's generally conservative approach, we will probably have a lower rate of increase percentage-wise in the next 18 months than we have in years past,'' Connors said.

That means the Redmond company would at most hire 2,100 people over the next 18 months. By comparison, its work force has grown by 2,830, or 7 percent, since its fiscal year began in July and grew by 7,595, or 24 percent, the previous year. At the end of February, it had 42,000 employees worldwide, including 22,000 in the Puget Sound region.

Even at a slower pace, Microsoft's growth contrasts sharply with layoffs and cutbacks being made by other leading technology companies to weather the economic slowdown and reduced computer spending.

Chip maker Intel announced Thursday that it is trimming 5,000 jobs, and network-equipment manufacturer Cisco said yesterday that it is cutting up to 5,000 full-time and 3,000 temporary jobs.

But even a slowdown in hiring at Microsoft affects the state economy. Each Microsoft job generates an estimated three additional jobs, according to Chang Mook Sohn, the state's chief economist.

"Anytime we hear of slowdowns or layoffs by one of the most important companies in the state's economy, we are concerned," Sohn said.

Sohn, who said Microsoft accounts for 60 percent of the state's software jobs, already had anticipated a slowdown, forecasting in November that it might hire only about 2,000 people this year.

The number of Microsoft employees also affects transportation and urban design, particularly on the Eastside, said Chandler Felt, a King County demographer.

Felt doesn't expect a dramatic effect because the company is still growing. He said the growth is "pretty astounding,'' considering its stock has fallen by half in the past year.

The stock's drop means fewer employees are exercising their stock options, which is having an impact. "They may not have lost employees, but they most certainly have lost economic effect on the Puget Sound economy,'' Felt said.

Connors told investors that 2001 will be a challenge but that the company is positioning itself to benefit those who stick it out.

"If you look to the long term, we're working very, very hard to be sure shareholders have a good return,'' he said.

To reduce costs and meet terms of a legal settlement, the company is also reducing its temporary work force, he said after his speech.

Microsoft already has cut the number of temps in the past year in the wake of a lawsuit - now settled - that it had not provided those workers adequate benefits, said Marcus Courtney, an organizer with Washington Alliance of Technology Workers, or WashTech.

Courtney, whose group is attempting to organize technology workers, said many temps were converted to permanent employees last year.

He said the union has not heard of new, broad cuts among what it believes are 3,000 to 4,000 temps at Microsoft.

Last month, Microsoft had about 3,200 job openings, mostly local technical positions, said David Pritchard, senior human-resources director. About 2,700 were on the West Coast, including a few hundred in Silicon Valley.

Pritchard said earlier that Microsoft has an annual attrition rate of 9 percent. That would suggest the company's overall work force may decrease if hiring growth is limited to 5 percent.

Connors said Microsoft is also asking departments to trim travel, marketing and other expenses.

"We're asking people to really redouble their efforts in how they spend the company's money,'' he said.

Microsoft's revenue growth has slowed as personal-computer sales and business-technology spending have slowed.

Its stock recently has hovered around $60, less than half of its 52-week high of $115. It closed yesterday at $56.69, down 4.32 percent.

Investors aren't giving up on the company, however.

Sylvia Anderson, a retired Seattle teacher at yesterday's investor conference, said she will keep the stock despite its recent performance and a glitch that delayed a demonstration of the new Windows XP operating system before the audience of 610 people.

Anderson said she sometimes has problems with her own computer, so she could sympathize.

"It's still a marvelous corporation,'' she said. "Isn't everybody having short-term problems? I also have Sun Microsystems, and they're having worse problems.

"I'm going to hold, definitely.''

Brier Dudley can be reached at 206-515-5687 or bdudley@seattletimes.com.

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