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Microsoft announced this week its first-ever layoffs, which brought out the naysayers and predictors of doom, but not me.  I see cutting these 5000 jobs as good, with my only caution being that it really should be 20,000 at least. Fifty thousand would be better.

I am not, nor have I ever been, a big fan of Microsoft.  Lots of smart people at Microsoft do great work and lots of other people at Microsoft do not do great work.  It would be nice if most of the 5000 being let go were the latter variety, but who really knows?

This is a complex subject so I am going to take it one piece at a time.  First there is the issue of Microsoft having never before had a layoff.  In one sense why would they?  The company makes so darned much money – or at least they have historically – that layoffs in the traditional sense of cutting fixed costs have hardly been necessary.  But there is a problem with not having layoffs and that’s the sad fact that it makes it difficult to get rid of people who simply don’t belong.  There are a lot of folks at Microsoft who should have departed long ago, but why?  It’s comfortable in a way, the benefits are good, and once you’ve been around for a few years, heck, there’s not much they could ever do to get rid of you.  There are people – possibly thousands of people – coasting at Microsoft because of the company’s policy of simply allowing it.

Next let’s consider how big a layoff this really is – 1400 people right away and up to 5000 by sometime in 2010.  Microsoft has, depending on how you count it, about 100,000 employees.  If the average time in service is 10 years that implies that 10 percent of the Microsoft workforce leaves every year, which feels about right.  That’s 10,000 folks leaving of their own accord EVERY YEAR.  So what does this layoff mean, anyway?  “Over the next two years we’ll be eliminating 5000 positions.”  It means nothing.

The company’s intent MIGHT BE to permanently eliminate 5000 jobs over two years, but all that would mean under this scenario is that their hiring during that period would be limited to 15,000 replacements.

The real problem at Microsoft is one that every other public company would love to have – they make too much profit.  So unlike every other public company, Microsoft traditionally manages its earnings not by cutting expenses but by increasing spending.  It’s a legacy technique invented years ago by legendary CFO Frank Gaudette and embraced by Bill Gates and Jon Shirley because it accomplished the task of meeting Wall Street expectations, allowed the company to hide spectacular true profit margins, while still generally keeping anti-trust officials off Microsoft’s back.

The problem at Microsoft typically hasn’t been, “Oops, we’re not going to make enough money this quarter; how do we boost earnings?” It has been, “Oops, we’re going to beat Wall Street estimates by too much; what can we spend money on to bring our numbers into proper alignment?”

It’s a great problem for a CFO to have.

But what happens, then, when you finally do have a bad quarter?  For Microsoft it triggers a number of interconnected decisions and events.  If it were run like a normal company Microsoft could simply cut a bunch of expenses, move some money around and – like IBM does right now – look terrific to Wall Street.  But Microsoft doesn’t want to do that for a number of reasons, most of them familiar to erstwhile Y2K vigilantes who hid in the mountains in late 1999 waiting for the end of the world.  Simply put, Microsoft’s current system has built into it about $100 BILLION in hidden financial resources in the form of accounting rules that could be changed and whole businesses that could be jettisoned or even sold.  But having spent all these years building up that fat in case it might eventually be needed, Microsoft is loathe to make the changes required to start burning that fat in fears that the whole technique will be compromised and the fat burned before it is truly needed.

So they leave things pretty much as-is, announce a first-ever layoff that’s as close to meaningless as possible, and cut a few expenses to generate a projected $1.5 billion savings.  Why not?  We’re in the worst economy of our lives.  Making ONLY $4 billion in profit last quarter will be quickly forgiven.

I’m not saying here that Microsoft has fudged any numbers.  Just the opposite, I’m saying that for maybe the first or second time ever they AREN’T fudging numbers.

Microsoft is in trouble.  While they don’t this year need any of the doomsday techniques they’ve carefully built into the system, eventually they will.  Its simply inevitable as the world goes more and more mobile and Microsoft can’t control a majority of that mobile business.  It’s not that the PC is dying but that it is being supplanted – supplnated by platforms and business models that Microsoft does not control.

Anything less than majority market share in every segment means Microsoft is losing and losing big.

Steve Ballmer doesn’t appear to have any sense what to do about this and should leave the company.  Certainly the “beat Google” war is already over and Microsoft lost, whether Ballmer knows it or not.  Google, too, will fail in time, but not to Microsoft.

Redmond can continue to own the desktop but what happens when desktops disappear?  The company will eventually start whittling itself down, earnings will continue to look good, Wall Street will continue to be impressed (sort of) but it won’t make any difference at all to the endgame, which is oblivion or — worse still — irrelevance.

Instead of 5000 positions, the company should drop 50,000.  It should decide what businesses it is in and close or sell the rest.  It should be a lot better than it is at running its true core – the muscle that’s been hiding beneath all that fat.

The big question is whether Microsoft will do it, or even CAN do it?

I have my doubts, one of which is that it even matters.

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I knew things were bad when Steve Jobs didn’t make even a token video appearance at Macworld.  He would have done it, I’m sure, had he been well enough.  Maybe someone at Apple, weeks before, thought of suggesting such a video, but of course to do so then would have been committing career suicide even if in retrospect it would have been a good idea.  So now Steve is off on his six month (or longer) medical leave, readjusting those hormones, and the press is abuzz with what the heck Apple will do without Steve.

Apple will be fine.

Steve Jobs is an amazing chief executive, clearly the best of his era, but that doesn’t make him irreplaceable.  True, he saved Apple, but now Apple is saved.  The company is rich, has growing market share and a mindshare dominance envied throughout the computer AND music AND video AND mobile phone industries.  Steve could die tomorrow and Apple would be fine for years to come.  Apple might even be better.

Steve, for all his design insight and high standards is also a pain in the ass, but it is his narcissism – keeping the whole company on edge and terrified, will he or won’t he? – that has to have taken a toll and may well land the company in court.  Twenty thousand people are sitting around wondering whether their jobs are endangered because he is ill and that’s just crazy.

For a time Apple will be run with everyone asking, “What would Steve say?”  And because he’s been such a huge factor in the lives of his direct reports for so long, they’ll have that voice of Steve in their heads and will do the right thing automatically.  And eventually, if Steve for some reason doesn’t return to Apple, new Steves will emerge.  If that happens I’m guaranteeing right here that Apple will gain a new CEO and it won’t be Tom Cook OR Phil Schiller because neither man can replace Steve Jobs and they know it.

In the long run the goal won’t be to replace Steve, anyway, but to transcend him, because Steve was far from the perfect leader.

The last time Steve Jobs left Apple, back in 1985, the entire company breathed a sigh of relief.  Steve back then was an undisciplined brat.  John Sculley was able to dramatically improve Apple’s balance sheet through one simple technique – eliminating all the wacky projects Steve was spending $200 million per year running at Apple – projects that were generally never going to hit the market anyway.  Alas, that’s where Sculley ran out of gas as a leader because he lacked technical vision where that’s all Steve had in those days.

It took learning to run NeXT on a budget and almost losing the company to teach Steve how to be a leader.  It took learning to leave Pixar alone to teach Steve that there were some things – many things – best left to others more talented than he.  Those two experiences, added to his fall from grace in 1985, made Steve Jobs the leader he is today.  Still all elbows and shoulder blades, he somehow makes it work.

I feel for the guy.  It’s not his health scare, but his lack of true friends that worries me.  When your best friend is Larry Ellison you know you are in trouble. But that may be the best that either man can do. 

Steve is the critic of everyone around him. Yet the image I prefer to keep in mind was from an InfoWorld meeting years ago – back in his NeXT days – when Bob Metcalfe got Steve to show up and he brought with him his little baby.  In that short time I saw a doting and concerned father — a side of Steve I would have sworn could not exist.  Cynically I attributed it at the time to the baby being pre-verbal: how do you criticize someone who can’t understand what you are saying?  But Steve went on to have more kids, apparently with equal success, and I give him credit for that.  It’s not easy to be a good Dad.

So here’s to Steve Jobs, may he return in six months or go off and do anything else he likes.  But don’t worry about Apple. 

Apple’s on a roll.

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This is normally a column about technology and technology business but I can’t help noticing that the global economy is in the toilet and not much rational thought is going into fixing the problem.  I don’t mean to insult the bozos currently pretending to run our economy or the new group of bozos about to take their places when the Obama Administration starts up this month, but my Mom could do a heck of a lot better job than either group and she’s 84 years old. 

COME ON!  At least do a better job than Mom!

So let’s solve the problem right here and now, get it fixed and out of the way so we can get back to pondering DRM and Windows 7 and whatever else is more interesting than saving the world economy.  I’ll just present my plan.  If you like it then start calling it your plan and send it to everyone you know.  I don’t need any credit for this, especially if I turn out to be a bozo, too.  But I don’t think that’s likely.

So here’s the problem.  Coming out of a credit bubble we have no credit.  People and businesses that HAVE money won’t lend any of it to people and business who DON’T HAVE money so the economy suffers, enters a period of deflation, everything goes to hell and we lose our houses.  After that we’re set up for an eventual period of inflation that none of us will be prepared to handle, etc., etc.  Against this the government’s idea is to spend a lot of money to stimulate the economy, putting even more financial stress on our kids and their kids through $1 trillion deficits into the sunset.  And all of this is justified because of two ideas: 1) we don’t know anything else to do, and; 2) this way the same people who made the bubble are benefitting from its aftermath. 

Hank Paulson is not Lucifer in this story, but he IS Belial.  Bone-up on your Milton and figure that one out. 

The solutions being offered aren’t good.  It’s not that I am saying all these companies that have been judged as too big to fail should have been allowed to fail any more than I am saying those companies judged just right to fail ought to have been saved.  I think there’s a little too much God-playing going on around here and what we really need is a simple solution that pays for itself along the way.

I want a revenue-neutral route out of the current recession. 

And I want that route to involve a lot less government intervention and potential manipulation.  Government hasn’t shown itself to be very good at fixing things so far and the plans being presented going forward don’t look much better so let’s just do it my way, okay?

What we need is a lateral solution because the current bag of tricks is empty and wasn’t that good to begin with.  All this spending of money IN THE HOPE that it will inspire certain actions by banks and consumers just doesn’t make any sense to me.  I’m all for rebuilding our crumbling infrastructure, but I don’t think we can do so fast enough to make much of a difference.  We need to pack $2-3 TRILLION in spending into the next 12 months, ideally with as little of that amount as possible being paid for with government money.

Think about it.  The point of economic stimulus is to stimulate the damned economy, NOT to spend government dollars.  It’s much more efficient to get other people to spend that money and to spend it on most anything, it really doesn’t matter.  Just spend it.  Now how to make that happen… 

A federal study of the 2001 tax year concluded that Americans were underpaying their federal taxes by $290 billion per year and had been for many years.  Given that the Bush administration entered in 2001 and cleverly cut the budget for IRS enforcement I can guess with some certainty that tax cheating has become worse, not better.  So let’s pin it at $300 billion per year or $3 trillion for the last decade.

My proposal to end the recession will cost $20 billion, not $775 billion.  I would allocate $20 billion in extra funding for federal tax compliance in the coming year.  I’d also open-up such compliance enforcement to private firms.  That’s the stick.

The carrot comes in the form of a quite specific form of one-time tax amnesty.  Taxpayers who have shorted Uncle Sam will be asked to come forward and report their crimes, which will result in no additional tax payments or penalties – none.  If you are a tax cheat and don’t come forward, that $20 billion will go toward hunting you down.  If you are a tax cheat and do come forward but lie about the extent of your cheating, that $20 billion will be used against you, too, so there is a huge incentive to be honest and a large penalty for not being so.  This is not a free lunch: you have to report IT ALL.  That should be about $3 trillion for the last decade, remember.

Taxpayers who choose to participate in the amnesty program will be still subject to random audits but in general their accounts will be wiped clean IF they within the next six months take 50 percent of the tax money they admit to having owed but not paid and use it to buy goods and services in the United States.  These purchases would have to be documented. No investments or savings would qualify – just buying stuff.  Sure you can then turn around and sell the same stuff, I don’t care.

eBay will LOVE this idea.

It would be a $1.5 trillion stimulus plan that doesn’t fix any roads but sure buys a lot of Jonas Brothers tickets or anything else that people really want.  It would be distributed geographically much like the U.S. population.  It would generate secondary taxes (taxes on income earned by the people selling all that stuff — many of them the original scofflaws if you think about it) that could still be used to fix roads and bridges. And it would put no additional liens on our kids.

That’s my idea, what’s yours?

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The future of American broadcast television is coming February 17^th when U.S. stations are supposed to shut down forever their analog transmitters. After then, all broadcast TV in the United States will be digital.

Too bad we aren’t ready.

We’ve had more than a decade to prepare for this moment. I did the first-ever PBS HD broadcast back in 1998 and explained then what was going to happen next month. The date was already set. But some people just don’t listen and I think the confusion we’ll see next month among parts of the TV audience will be huge.

Most of us actually have nothing to worry about because those who have satellite or cable TV, which is more than 80 percent of American TV viewers, won’t even notice a difference. That’s because the cable and satellite companies will continue to provide us with the same signals they always have, even though it means converting a digital signal back to analog.

In one sense the coming of DTV is a boon to cable and satellite companies because it may drive new customers to them. BUT IT HASN’T YET. Look at Time-Warner Cable’s recent announcement of flat subscriber growth. If customers were flying to cable because of worries about the DTV transition those TWC numbers would have been up, not flat. And they will go up, but not until the stations pull their plugs next month.

That’s the way some of us are, you know. We wait until our asses are on fire to do something about maintaining our Oprah fix

And even then you know the cable companies will screw it up because of the huge influx of new business and because, well, they ALWAYS screw things up. All those who love their cable TV service raise your hands.

Next month there will be howls of outrage from people who have somehow gone an entire decade watching TV and ignoring all those Public Service Announcements about the switchover. What does that say about the true power of advertising? Pitiful.

Just this week the Consumer Electronics Association released the results of a poll trumpeting the fact that 90 PERCENT of TV viewers now know the DTV switchover is coming. That’s supposed to be good news.

Think about it for a moment. There are 110 million households in the U.S. with televisions. According to the Consumer Electronics Association after a decade of explaining and promoting the changeover at a cost of hundreds of millions of dollars, ELEVEN MILLION HOUSEHOLDS STILL DON’T KNOW WHAT’S COMING.

And remember the CEA survey only concerns awareness and says nothing about whether people have actually prepared and are ready for the coming change in their TV service. Those numbers are undoubtedly lower than 90 percent.

Given the penetration of cable TV in this country the actual numbers probably won’t be that bad. If 80 percent of all viewers have cable or satellite one might hope that 80 percent of the clueless 10 percent are already covered, meaning those who will be surprised when Judge Judy goes dark might be as few as 2.2 million households. But my guess is that those who don’t know about DTV are LESS LIKELY to have cable or satellite so let’s approximately double that at-risk figure to four million households.

All these people have to do, of course, is get a digital converter box and maybe a new antenna to be able to watch DTV on their old ATV. The government even has a coupon program that will give us $40 off on up to two converter boxes per household. That’s up to two $40 coupons per household if I wasn’t clear. With some boxes costing EXACTLY $40, this means switching to DTV can be free! That is IF it works.

I live in Charleston, South Carolina, right downtown in the historic heart of the city. The day after Christmas 2006 I bought on sale a very nice Samsung HDTV and a Terk HDTV Pro indoor antenna – an antenna that WOULDN’T be covered by those $40 coupons. Though apparently many analog antennas are fine for DTV, I didn’t have an antenna at all, so I had to buy one.

In December, 2006 I was able to receive with acceptable quality ONE broadcast HD station on my HDTV. As of this morning – two years later — I am able to receive TWO acceptable HD signals.

I don’t live in the boonies. I don’t even live in the suburbs. I live less than seven miles from all five local HD transmission towers. I live in a colonial city that limits to 55 feet the maximum height of any building in my part of town. I have a name brand TV and a name brand antenna. Now my guess is that in the last two years digital receivers and antennas have both improved somewhat, but I should be able to get more than 40 percent of the signals that are supposed to be available.

Based on this experience my guess is that a lot of people are going to be disappointed with their new digital broadcast TV service. The FCC estimates that the possible TV audience will shrink by two percent, which is to say that the DTV signals won’t make it to two percent of the audience currently receiving analog TV. The FCC is hoping that most of those two percent have cable or satellite or maybe don’t give a damn. They are hoping, too, that their two percent estimate is too high. But my experience suggests that it is actually too low.

Here’s what I think is going to happen over the next two months. First, we’ll run out of converter coupons. Coupon supplies are already low and more haven’t yet been authorized because, of course, they represent a financial obligation – one that requires Congressional approval. Interestingly there are plenty of converter boxes available, which means that people have coupons they haven’t yet used. Maybe they are hoarding coupons. Maybe they are just lazy. Maybe, like mail-in rebates, lots of converter coupons are lost and will never be used. Whatever the reason there is going to be a big blow-up when up to four million households suddenly want converter boxes and can’t get coupons.

But even when they get their coupons and their converter boxes some percentage of the broadcast viewing audience is going to be dissatisfied with their new DTV service. I will be surprised – REALLY surprised – if this number is under 10 percent of those who don’t have cable or satellite, which puts us back with somewhere around two million really unhappy VOTERS.

Two million pissed-off people is a LOT of pissed-off people in a nation that is essentially governed through popularity polls. Two million angry people could have ended the war in Iraq. You can bet two million angry people will cause a tsunami of too-late over-reaction in Congress.

The politicians know this is coming. There are proposals right now in Congress to allow some TV stations to keep their analog transmitters running awhile longer. But this just delays the problem and doesn’t solve it.

This too shall pass, of course. People will survive a short time without Dr. Phil. But don’t be surprised if Congress grabs money from the Fiscal Stimulus wallet and starts handing out subsidized basic cable subscriptions or even HDTVs to those people who waited.

Maybe they aren’t so dumb after all.

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What an irony if the “relatively simple and straightforward” treatment for Steve Jobs’ hormone imbalance revealed this week is for the lifelong vegetarian to eat meat. I have no way of knowing that’s his treatment, of course – the idea just sprang into my head.

But given the press and stock market reaction to details of Jobs’ health problems, I’d say he’ll make a cameo appearance at Macworld a few hours from now even if he has to send his good twin to do so.

I further predict that Apple will make a substantial product announcement or two. This won’t be the minimalist Macworld that people had feared. If Jobs won’t be doing the heavy lifting this time he’ll at least leave Phil Schiller with a product or two to announce.

And speaking of products to announce, readers have been wondering whatever happened to the disk drive I was working on with stainless foil media? It’s still coming along nicely, thanks, but startups without money tend to take longer to succeed OR fail than startups with money.

The recording media is more or less perfected, which was harder to achieve than any of us expected, and we should see prototype drives within the next couple months. They’ll be comparable in capacity to similar size conventional drives but less expensive to make, more shock-resistant, and require vastly less energy to run.

For an example of how much energy savings is possible with Metal Foil Drives, consider the duty cycle of a traditional glass platter drive inside a media player like an iPod. The way such media players work is they read data from the hard drive into buffer memory then play from that buffer. First the drive spins-up, which takes about five seconds. Then the data is read from the drive, which takes about a tenth of a second. Finally the drive is turned-off until the buffer memory is depleted and the cycle starts all over again. Each cycle, then, involves powering the drive for 5.1 seconds.

The Metal Foil Drive (MFD), however, has a LOT less mass to spin up than the heavy glass platter it replaces. Hard drives moved a few years ago from primarily aluminum to glass platters because glass can be polished smoother allowing lower flying height for the read-write heads and resulting higher arreal densities. But glass platters are also more expensive than aluminum and heavier. They are a LOT more expensive and heavier than metal foil. As a result, an MFD of comparable capacity spins-up in a tenth of a second and reads the data in another tenth of a second. Not only is 0.2 seconds a lot less time (and energy) than 5.1 seconds, but the lower mass of the MFD platter allows the use of a smaller, cheaper, and lower-power motor to do the work – yet another win.

But why even bother with hard drives with flash memory prices dropping so quickly? Because the more storage capacity we have available the more stuff we’ll want to store. I see MFD’s carrying HD movies around for years to come.  Maybe your Nano doesn’t need one, but video will keep us buying drive-based media players, too.

There will always be people who don’t want to carry all their movies around with them, of course, and to keep those folks happy Netflix seems determined to stream its B movies to as many consumer electronic devices as possible. This week we hear about Netflix streaming direct to certain LG HDTVs, which is cool. But a financial analysis of the product as it will be initially offered is cool only for LG – certainly not for LG customers.

The Netflix-capable LG TV’s, we’re told, will cost about $300 more than LG sets that can’t do such streaming. The difference between the two TV families is that the streamers have a System-On-Chip to run a minimal operating system and handle H.264 decoding, an Ethernet adapter chip to connect to your home network, and some buffer memory. That’s three extra chips costing at most $20 extra plus a little software, giving LG a gross profit margin of around 1500 percent for this particular improvement!

If consumers will actually pay $300 more for a TV with Netflix streaming built-in then I predict that EVERY HDTV manufacturer will install Netflix on every set by the end of this year. They won’t even care if people actually watch Netflix content as long as they just buy the more expensive sets.

The jury is still out, I’d say, on whether people will actually pay this price difference when, for $99, they can simply plug in a cheap media streaming box like the one from Roku and achieve the same result.  Still it’s worth a shot, the folks at LG must be thinking.

It’s what Steve Jobs would do.