Microsoft announces 7,800 layoffs
By David Brown
Microsoft announced on Wednesday that it will be eliminating 7,800 positions, some seven percent of its workforce, in order to restructure its phone business. They have also announced that they will be writing down $7.8 billion in assets associated with their acquisition of Nokia last year.
9 July 2015
The cuts come shortly after the latest US jobs report showed the lowest labor participation rate since 1977 and demonstrate that even highly profitable technology companies are paring back employment. By all measures, Microsoft is making substantial profits. It recorded $5 billion in net income last quarter and is currently sitting on cash reserves of more than $90 billion.
The announcement was made in advance of Microsoft's fourth quarter earnings report, which is scheduled for release on July 21. In the third quarter Microsoft sold 8.6 million units of its smartphone, the Lumia, an 18 percent increase over a year ago. At the same time Microsoft’s overall phone revenue dropped 16 percent and it failed to gain a market share compared to the major phone developers Apple and Google.
These layoffs follow on the heels of last year's job cuts of 18,000, the largest in the company's history, also focused on their phone development. The stock market responded favorably then, boosting Microsoft’s five percent over the course of a week. The current announcement saw no real movement on the market, with Microsoft stock losing six cents.
The nearly 26,000 jobs Microsoft has cut over the past two years have all been tied to their acquisition of Nokia's mobile unit for $7.2 billion. The announcement of a $7.6 billion write-down means that Microsoft now considers the assets it gained worthless. This isn't the first time Microsoft has spent billions of dollars to acquire a company, only to consider the venture a total loss.
In 2007 Microsoft bought aQuantive, a digital advertising company for $6 billion, only to write down $6.2 billion of assets in 2012. These vast sums spent on acquisitions followed by mass layoffs are a sign of the parasitic nature of the speculation driving the current economic “recovery.” While major tech companies have been reaping enormous profits since the 2008 crash, they are reinvesting little in production, which they consider too risky and unlikely to produce the returns demanded by the stock market.
As of May of this year, the top five US tech companies were sitting on an unprecedented cash hoard of $430 billion. Apple has the most with $178 billion, followed by Microsoft's $90.2 billion. Google, Cisco, and Oracle round out the list with $64.4, $53, and $44.7 billion respectively.
Meanwhile, there has been a sharp growth of “activist investor” funds, which buy controlling shares in a company and turn a quick profit by increasing dividends and initiating stock buybacks. The size of these funds has increased from $20 billion ten years ago to $120 billion today.
Instead of investing in production, they are paring down their less profitable departments in order to increase investor returns. Microsoft has been a central figure in this trend. In 2007, Microsoft paid $0.41 per share but in 2014, that figure nearly tripled to $1.15. This has been coupled with a $40 billion stock buyback program at the end of 2013. Microsoft is far from alone in this.
Apple announced last April that it was expanding its stock buyback program to $200 billion, to be used before 2017. In the stagnating global economy, investors are finding the highest returns in these short-term looting operations that extract wealth through the destruction of jobs and production. In addition to stock buybacks, they also engage in asset stripping mergers and acquisitions.
In 2014 tech companies spent a combined $214 billion in these deals, which is near the records set in 1999 and 2000 as part of the dot-com boom. Since 2009 a total of $900 billion has been spent on tech mergers and acquisitions, with 60 percent of that coming from five major companies: Facebook, Google, Microsoft, Oracle, and SAP.
Moreover, very few of the current mergers involve new or high-growth companies. Only 10 percent of the $900 billion spent on tech mergers and acquisitions since 2009 were “growth” transactions according to Business Insider. Instead they are acquiring low-growth established companies.
After the acquisition of one of these companies, as in the case of Nokia, employees are laid off to cut expenses, the company stock gets a bump and the cycle begins again.
In 2014 the tech industry laid off 60,000 workers, the largest jobs cuts in the sector since 2009.
US income inequality continued to soar in 2014
While the growth of social inequality has dramatically accelerated following the 2008 crash, this is a continuation of a decades-long process. The report notes, “Top 1 percent incomes grew by 80.0% from 1993 to 2014. This implies that top 1 percent incomes captured almost 60% of the overall economic growth of real incomes per family over the period 1993-2014.”
In fact, the US government’s response to the 2008 crash has been dedicated to inflating the wealth of the super-rich while driving down incomes for the vast majority of the population. The White House has protected Wall Street executives from legal prosecution, while the Federal Reserve has handed out trillions of dollars in cheap money through “quantitative easing” programs, leading share values to triple on major US exchanges.
On Thursday, US President Barack Obama plans to unveil what he has called a major new policy initiative in a speech in La Crosse, Wisconsin. The proposal entails new federal rules that would make an additional 3 percent of the US population eligible for overtime pay. If adopted, the change would add a mere $1.3 billion to worker’s wages annually. This is a tiny fraction of the trillions of dollars that have been transferred to the financial elite since the 2008 financial crisis.
THE WAY OUR GOVERNMENT AVOID THE BELOW IS WITH OBAMA’S OPEN AND UNDEFENDED BORDERS TO PERMIT HORDES OF ILLEGALS TO JUMP OUR BORDERS AND JOBS… then the American middle class gets the tax bills for the staggering cost of Mexico’s looting.
"During the month, some 432,000 people in the US gave up looking for a job." EVEN AS JEB BUSH, HILLARY CLINTON and BERNIE SANDERS PREACH AMNESTY! AMNESTY! AMNESTY!
"The American phenomenon of record stock values fueling an ever greater concentration of wealth at the very top of society, while the economy is starved of productive investment, the social infrastructure crumbles, and working class living standards are driven down by entrenched unemployment, wage-cutting and government austerity policies, is part of a broader global process."
HILLARY CLINTON'S BIGGEST DONORS ARE OBAMA'S CRIMINAL CRONY
"A defining expression of this crisis is the dominance of financial speculation and parasitism, to the point where a narrow international financial aristocracy plunders society’s resources in order to further enrich itself."
Federal Reserve documents stagnant state of US economy
Federal Reserve documents stagnant state of US economy
By Barry Grey
The US Federal Reserve Board last week released its semiannual Monetary Policy Report to Congress, providing an assessment of the state of the American economy and outlining the central bank’s monetary policy going forward. The report, along with Fed Chair Janet Yellen’s testimony before both the House of Representatives and the Senate, as well as a speech by Yellen the previous week in Cleveland, present a grim picture of the reality behind the official talk of economic “recovery.”
21 July 2015
In her prepared remarks to Congress last Wednesday and Thursday, Yellen said, “Looking forward, prospects are favorable for further improvement in the US labor market and the economy more broadly.”
She reiterated her assurances that while the Fed would likely begin to raise its benchmark federal funds interest rate later this year from the 0.0 to 0.25 percent level it has maintained since shortly after the 2008 financial crash, it would do so only slowly and gradually, keeping short-term rates well below historically normal levels for an indefinite period.
This was an expected, but nevertheless welcome, signal to the American financial elite, which has enjoyed a spectacular rise in corporate profits, stock values and personal wealth since 2009 thanks to the flood of virtually free money provided by the Fed.
"But as Yellen’s remarks and the Fed report indicate, the explosion of asset values and wealth accumulation at the very top of the economic ladder has occurred alongside an intractable and continuing slump in the real economy."
In her prepared testimony to the House Financial Services Committee and the Senate Banking Committee, Yellen noted the following features of the performance of the US economy over the first six months of 2015:
* A sharp decline in the rate of economic growth as compared to 2014, including an actual contraction in the first quarter of the year.
* A substantial slackening (19 percent) in average monthly job-creation, from 260,000 last year to 210,000 thus far in 2015.
* Declines in domestic spending and industrial production.
In her July 10 speech to the City Club of Cleveland, Yellen cited an even longer list of negative indices, including:
* Growth in real gross domestic product (GDP) since the official beginning of the recovery in June, 2009 has averaged a mere 2.25 percent per year, a full one percentage point less than the average rate over the 25 years preceding what Yellen called the “Great Recession.”
* While manufacturing employment nationwide has increased by about 850,000 since the end of 2009, there are still almost 1.5 million fewer manufacturing jobs than just before the recession.
* Real GDP and industrial production both declined in the first quarter of this year. Industrial production continued to fall in April and May.
* Residential construction (despite extremely low mortgage rates by historical standards) has remained “quote soft.”
* Productivity growth has been “weak,” largely because “Business owners and managers… have not substantially increased their capital expenditures,” and “Businesses are holding large amounts of cash on their balance sheets.”
* Reflecting the general stagnation and even slump in the real economy, core inflation rose by only 1.2 percent over the past 12 months.
The Monetary Policy Report issued by the Fed includes facts that are, if anything, even more alarming, including:
* “Labor productivity in the business sector is reported to have declined in both the fourth quarter of 2014 and the first quarter of 2015.”
* “Exports fell markedly in the first quarter, held back by lackluster growth abroad.”
* “Overall construction activity remains well below its pre-recession levels.”
* “Since the recession began, the gains in… nominal compensation [workers’ wages and benefits] have fallen well short of their pre-recession averages, and growth of real compensation has fallen short of productivity growth over much of this period.”
* “Overall business investment has turned down as investment in the energy sector has plunged. Business investment fell at an annual rate of 2 percent in first quarter… Business outlays for structures outside of the energy sector also declined in the first quarter…”
The report incorporates the Fed’s projections for US economic growth, published following the June meeting of the central bank’s policy-setting Federal Open Market Committee. They include a downward revision of the projection for 2015 to 1.8 percent-2.0 percent from the March projection of 2.3 percent to 2.7 percent.
That the US economy continues to stagnate and even contract is indicated by two surveys released last week while Yellen was testifying before Congress. The Fed reported that factory production failed to increase in June for the second straight month and output in the auto sector fell 3.7 percent. The Commerce Department reported that retail sales unexpectedly fell in June, declining by 0.3 percent.
These statistics follow the employment report for June, which showed that the share of the US working-age population either employed or actively looking for work, known as the labor force participation rate, fell to 62.6 percent, its lowest level in 38 years. During the month, some 432,000 people in the US gave up looking for a job.
The disastrous figures on business investment are perhaps the most telling indicators of the underlying crisis of the capitalist system. The Fed report attributes the sharp decline so far this year primarily to the dramatic fall in oil prices and resulting contraction in investment and construction in the energy sector. But the plunge in oil prices is itself a symptom of a general slowdown in the world economy.
Moreover, a dramatic decline in productive investment is common to all of the major industrialized economies of Europe and North America. In its World Economic Outlook of last April, the International Monetary Fund for the first time since the 2008 financial crisis acknowledged that there was no prospect for an early return to pre-recession levels of economic growth, linking this bleak prognosis to a general and pronounced decline in productive investment.
The American phenomenon of record stock values fueling an ever greater concentration of wealth at the very top of society, while the economy is starved of productive investment, the social infrastructure crumbles, and working class living standards are driven down by entrenched unemployment, wage-cutting and government austerity policies, is part of a broader global process.
The economic crisis in the US and internationally is not simply a conjunctural downturn. It is a systemic crisis of global capitalism, centered in the US. A defining expression of this crisis is the dominance of financial speculation and parasitism, to the point where a narrow international financial aristocracy plunders society’s resources in order to further enrich itself.
While the economy is starved of productive investment, entirely parasitic and socially destructive activities such as stock buybacks, dividend hikes and mergers and acquisitions return to pre-crash levels and head for new heights. US corporations have spent more on stock buybacks so far this year than on factories and equipment.
The intractable nature of this crisis, within the framework of capitalism, is underscored by the IMF’s updated World Economic Outlook, released earlier this month, which projects that 2015 will be the worst year for economic growth since the height of the recession in 2009.