Bits Blog: As Detroit Wobbles, So Does Microsoft

Elaine Thompson/Associated Press Ford’s chief executive, Alan Mulally, left, with Steve Ballmer, Microsoft’s chief executive and a Detroit native, in 2009.

A day of reckoning arrived on Thursday for a once vibrant icon of industry. Separately, Detroit filed for bankruptcy.

It seems almost appropriate that Microsoft delivered one of its worst financial performances in memory on the same day that Detroit became the largest American city to file for bankruptcy protection. For years, people have noted parallels between the decline of the auto industry and the maturing of the PC business, comparisons that have become more credible as evidence accumulates of a shift to a post-PC era.

The parallels aren’t diminished by the fact that Steve Ballmer, Microsoft’s chief executive, is a Detroit native, whose father was a longtime Ford manager, and that Mr. Ballmer has sought the counsel of Alan Mulally, Ford’s chief executive, on Microsoft management issues.

The gloom had gotten so heavy that investors, who have not been kind to Microsoft for the past decade or so, had even started to cut the company some slack. Since the beginning of the year, they seemed to see encouraging signs that Microsoft, the software company more closely identified with the PC business than any other, was figuring out how to adapt to mobile, cloud computing and other megatrends disrupting the tech business. Its shares were up more than 30 percent for the year when the week began.

Now Wall Street is back to doubting Microsoft. Investors punished its stock on Friday, driving it down more than 11 percent.

In a research note on Friday, Rick Sherlund, an analyst with Nomura Equity Research and a veteran Microsoft watcher, noted how Wall Street had warmed to Microsoft’s message lately. “Not so fast,” Mr. Sherlund wrote. “It was discouraging to read down the table and see that every division was below expectations.”

Mr. Sherlund added that the disappointing results could increase the prospects that an activist shareholder would agitate for change at the company, perhaps initially by seeking a seat on the board of directors.

One of the most troubling signs of Microsoft’s troubles is the nearly $1 billion charge it took to cover slow sales of Surface RT, a member of its new family of tablet computers.

The Surface devices were Microsoft’s first attempt to pull an Apple and make its own computer hardware. And the company decided that the Surface RT, the less expensive model, would run on chips made by ARM, instead of the more powerful (and expensive) chips made by Intel. Microsoft went through the hassle of making its Windows operating system work on ARM chips, because its tablet strategy would not seem credible otherwise. ARM chips power most of the world’s smartphones and tablets because they are well suited for battery-powered devices.

But Surface RT devices have sold poorly — so poorly that Microsoft was forced to cut the price of the device by $150, to $349. Another version of Surface that runs on Intel chips, which have the benefit of running traditional PC applications, has not sold well either, by all reports.

Microsoft will not give up. Unlike Detroit, Microsoft is not short on money. With more than $77 billion in cash and cash equivalents, the company has years to finance to find a successful new business formula. Last week, it announced a corporate reorganization that could sharpen its product making.

But the process will take time. In an interview on Thursday, Amy Hood, the company’s chief financial officer, made it clear that company is not expecting a sudden change in its fortunes in the mobile market.

“I expect this to be a journey where we continue to make incremental progress,” she said.

Detroit, Embracing New Auto Technologies, Seeks App Builders

Mr. Mulloy is part of a group of workers that Detroit is suddenly hungry for — software developers and information technology specialists who can create applications for the next generation of connected vehicles.

“You’re going to see developers set up shop in Detroit because they’re going to follow the money,” Mr. Mulloy said, “and there will be lots of money.”

Already, the money is flowing.

General Motors, newly flush with cash after emerging from bankruptcy, is on a hiring binge, quadrupling its information technology staff and recruiting software developers to create a spate of apps for its 2014 model-year vehicles. While the hiring is taking place across the country, many of the new recruits will be working out of the Detroit area.

The Ford Motor Company plans to fill 300 positions in information technology this year, said Laura Kurtz, Ford’s manager of United States recruiting. The Chrysler Group, which declined to specify its plans, said it would hire more entry-level workers and was focused on attracting a highly skilled work force.

For Detroit, the hiring is a rare bright spot in a city teetering on the edge of bankruptcy. For the state over all, the Michigan Department of Labor projects that job growth in software developers for applications is expected to grow 23.5 percent from 2010; for software developers for systems software, 36.9 percent, the highest of any technical job classification. Michigan’s overall average for selected technical occupations is 8.5 percent growth.

The demand for in-vehicle applications is a “substantial job generator with high-end pay,” said Donald R. Grimes, an economic researcher at the University of Michigan.

Beyond the three Detroit automakers, the push for the connected car is helping support homegrown technology businesses like Mr. Mulloy’s as well.

Detroit Labs, founded two years ago to create smartphone apps, is shifting to work with automakers to build in-vehicle apps. The company has grown tenfold since 2011, to 40 people, and aims for 60 workers by the end of the year.

“If you go to the coasts, you are one of thousands,” said Paul Glomski, one of its founders. “In Detroit, you have the opportunity to make an impact. It’s for real.”

Mr. Mulloy’s company, Apigee Labs, provides systems that help companies build applications for media ranging from phones and vehicles to fitness equipment and power grids. He chose to put Apigee in Detroit’s fledgling downtown technology hub, where he shares space with Detroit Labs, which uses Apigee’s products to build apps.

So far, the jobs are primarily attracting people who already live in the area and people like Mr. Mulloy, natives of Michigan who are drawn back to the area not only for the work but also for the lower cost of living. The next challenge will be to recruit developers without ties to Detroit, and that could be a tall order.

“In general,” Mr. Grimes said, “Michigan is not perceived as the hippest place for young technology geeks.”

Automakers are stressing the career opportunity: even though cars have had computer-controlled systems for years, software innovation is in its early stages and there will be a chance for a worker to stand out. G.M.’s 2014 models, for example, will be the first to include in-car apps.

“They view it as a new space to be creative,” said Nick Pudar, director of G.M.’s new developer ecosystems program, which was created to connect the automaker with developers in other cities. “The vehicles are becoming this new channel of innovation.”

Mr. Pudar travels to software developer hubs around the country — San Francisco, New York, Boston, Denver, Chicago and Austin, Tex., among them — to persuade developers to turn from developing phone apps to working on automotive apps.

Bill Vlasic contributed reporting from Detroit.