Death Watch 2024: Embracer Group Continues To Spiral

As predicted by me:

• Embracer will not balance their books. There's only so much more that they can cut from the operation, and still have an operation.
• Embracer's next step will be divestment: selling off the assets that they bought, probably for a lot less than they paid for them, since it's a buyers' market right now.

 As reported by PC Gamer:

A Bloomberg report says that Swedish holding company Embracer Group has reached a deal worth as much as $500 million to sell its Saber Interactive division to a group of private investors. The deal will make Saber Interactive a privately owned company, according to the report, with approximately 3,500 employees.

Embracer bought Saber Interactive in 2020 at the height of its acquisition spree. It was made the fifth operating group under Embracer's corporate structure and currently serves as the parent of numerous other studios including 4A Games, Aspyr, Beamdog, New World Interactive, Slipgate Ironworks, and Tripwire.

That's me, two for two, with two to go: only restructuring and liquidation remain. If you shorted Embracer stock two months ago, then good for you. If you doubled down on Embracer stock two months ago, then I'm sorry. I'm so, so sorry.

That $500 million figure, BTW? That's wishful thinking. Embracer paid $150 up front, with $375 million in performance bonuses to follow, and there's no fucking way they're getting all of that back in a fire sale of Saber. 100%, Embracer are losing money on this deal; they're only doing it because they have no other options, and are desperately trying to survive long enough, and reduce their own prince point enough, to be bought by someone more flush.

Just bad luck that the rest of the big players in the industry are also contracting, I guess; there will be few, if any, $70 billion Activision-style deals this year. I give Embracer six more months; nine tops.

UPDATED MAR. 15TH, 2024:

Told you so:

Embracer has sold Saber Interactive for $247 million.

[...]

Embracer originally acquired Saber Interactive for $525 million in 2020.

As expected, sold for less than half what they paid to buy. This will all be going to creditors; there's no way this is going to operating expenses. Selling Saber only bought Embracer a little more time.

I'm calling it now: Embracer isn't going to make it

As reported by The Verge:

Embracer Group, the company attempting to forge one video game publisher to rule them all, has just presided over another round of layoffs. Eidos Montreal is letting go of 97 game developers and support staff, the company announced today on X, shortly after Bloomberg’s Jason Schreier scooped that the studio has canceled an unannounced Deus Ex video game.

This is just the latest in a round of increasingly desperate attempts by Embracer to reduce their burn rate to something they can afford. This is deeply misguided, for several reasons.

1. Layoffs are expensive. A laid off employee still receives several months of pay in severance, and several months of benefits, which can't just be cut off cold because you decided they would be unemployed now, through no fault of their own.
2. Layoffs are destructive. Contrary to the popular beliefs of CEOs, terrified employees don't work harder; they spend work time hunting for better jobs elsewhere, assuming they don't burn out from their suddenly increased stress. Expect turnover and absenteeism to increase, and remain high, even as productivity drops and remains low.
3. Layoffs are short-sighted. Embracer Group does not makes games; they employ people who make games. Or at least, they did; every new round of layoffs mean fewer people to make the games which are their sole source of revenue. And good luck hiring new people to replace the ones you laid off -- nobody wants to get hired at a company that's as badly managed as Embracer.

This is a death spiral. 

Massive layoffs are really not normal. Really.

A couple of days ago, I blogged about Microsoft's imminent wave of layoffs. I was particularly nonplussed with the way that a lot of the coverage was unfolding; everyone seemed anxious to portray Redmond's fourth massive restructuring effort in four years as somehow normal, the sort of thing that successful companies do all the time. But I couldn't recall a single instance of a successful company laying off thousands of employees as part of a massive restructuring effort, let alone a company that had laid off thousands of employees in the each of the preceding three years, and was looking set to add significantly to that total in year four.

And make no mistake, although it may not be the worst of them, this is the fourth year of massive layoffs at Microsoft. They cut 18,000 jobs in 2014, an event which CNN Money described as "by far the largest round of layoffs in the company's history." They followed that by cutting 7,800 more jobs in 2015, a year in which they also took a US$7.6 billion “impairment charge” related to their acquisition of Nokia, and restructuring charges of over US$750M. 2,800 more jobs were cut in 2016, as they continued to wind down their Nokia business.

As companies tend to do, when delivering bad news, Microsoft softened the blow on many of these announcements by touting some kind of success; their cloud services division saw 3% growth in 2016, for example. They've carefully avoided talking about the overall health of the company, and their share price hasn't suffered too much, at least so far. But there's no way around the steadily mounting numbers, here, as Microsoft's massive structuring becomes an annual event.

That 2014 CNN Money article gives some context for this:

Though Microsoft is laying off a massive number of employees, it doesn't come close to the biggest job cuts in corporate history. IBM (IBM, Tech30) cut 60,000 jobs in 1993 as part of a massive restructuring of the tech giant. During the Great Recession, Citigroup (C) slashed 75,000 jobs between 2008 and early 2009. And Hewlett-Packard (HPQ, Tech30) laid off 27,000 employees in 2012.

At 28,600, the cumulative layoff total Microsoft's annual restructuring has has now surpassed Hewlett-Packard's 27,000 layoffs from 2012. But, while the numbers are slowly mounting, there is one clear difference between Microsoft's layoffs and the other examples cited by CNN Money: all of the other examples were one-time events. Only Microsoft seems to have turned this kind of restructuring into the way they start every fiscal year.

Don't believe me? Check for yourself. Google "massive layoffs -Microsoft," and see what you get.

Microsoft to lay off thousands of sales staff, again.

I've been wondering, in print, for months, just how long Microsoft were going to be able to keep up appearances even as their flagship products failed to thrive. With Windows 10 languishing below 27% usage share for yet another month, and the Universal Windows Platform, Edge, Bing, and mobile along with it, it seemed like only a matter of time before the cracks would show. The question wasn't so much "if?" as "when?" And the answer seems to be "soon."

From TechCrunch, via Slashdot:

Microsoft is poised to layoff thousands of employees worldwide in a move to reorganize its salesforce.

A source with knowledge of the planned downsizing told TechCrunch that the U.S. firm would lay off “thousands” of staff across the world. The restructuring is set to include an organizational merger that involves its enterprise customer unit and one or more of its SME-focused divisions. The changes are set to be announced this coming week, we understand.

Microsoft declined to comment.

Earlier this weekend, the Puget Sound Business Journal, Bloomberg and The Seattle Times all reported ‘major’ layoffs related to a move to increase the emphasis on cloud services within Microsoft’s sales teams worldwide. Bloomberg said the redundancies would be “some of the most significant in the sales force in years.”

Microsoft have made something of a habit of July layoffs, but one shouldn't mistake regularity for normality. Laying off thousands of staff every year is not normal, something which becomes immediately evident once you start looking at the reasons behind Microsoft's massive layoffs of the last two years.

Last year, Microsoft announced that it would cut 2,850 jobs — including at least 900 from its sales group, according to The Seattle Times — having two months earlier said it would let go of 1,850 staff related to its smartphone business. In July 2015, it made 7,800 job cuts and wrote down $7.6 billion of its Nokia acquisition.

Assuming that this year's round of layoffs happens as expected, this will be the third time in three years that Microsoft have responded to failure (first, their smartphone struggles; second, their smartphone division's ultimate failure; and now, their lack of an effective strategic focus) with massive layoffs. This is why layoffs normally happen in troubled organizations: to reassure shareholders that the troubles are only temporary, that the organization is committed to "controlling costs," as part of their drive to "return to profitability," which always strikes me as odd. It's as if they're tacitly admitting that they can't actually grow, and can only realize profits by cutting costs.

I really can't stress enough how unusual it is for a corporation of Microsoft's size to feel the need for massive layoffs in multiple consecutive years. Successful firms do not do this, or need to do this -- their successes speak eloquently of potential profits, all on their own.

Also, Azure seems to be thriving, in exactly the way that Windows 10 isn't. From The Stack:

Azure has been performing well, with revenue growth almost doubling during the third quarter and 93% sales growth. However, as the service continues to face strong competition from the likes of Amazon Web Services (AWS), Microsoft is eager to channel its efforts into the booming cloud market.

Microsoft still trails AWS, which generated $3.7 billion in revenue in 2016 – placing it far ahead of the next five big cloud players.

In a recent research note, analyst Brent Bracelin forecasted that Microsoft Azure could overtake AWS in revenue this year, which would see it take the lead position for the first time. Bracelin commended Microsoft for ‘unmatched product depth and breadth.’

While I think that forecast is overly optimistic, the point remains that Microsoft's shift of sales focus to Azure makes sense, since Azure is the one Microsoft product that's arguably succeeding. That doesn't necessarily mean that they should downsize their sales efforts in other areas, though... unless their efforts in those areas were not yielding returns commensurate to their expense. And it's at this point that one must remember that the main focus of their sales and marketing efforts for the last two years has been Windows 10 and its by-products, almost exclusively.

Shifting their corporate message from "all Windows 10, all the time" to one that's more focused on a push to catch up to Amazon Web Services could be a smart move, but only if Microsoft as a whole shift strategy from one that relies on leveraging a nonexistent Windows 10 desktop monopoly into dominance in other areas. If their overall strategy doesn't change, then it's tough to see how much it will mean for them to catch Amazon in the cloud computing space.