Microsoft to cut 5,000 jobs as net income falls

In a disappointing second quarter Microsoft revenue dropped in its important Windows operating system business

Illustrating current economic woes, Microsoft had a disappointing second quarter, with revenue dropping in its important Windows operating system business.

Overall, Microsoft's revenue rose 2 percent for the quarter that ended Dec. 31, but net income fell 11 percent compared to the year-earlier period, it said Thursday. The company made a net profit of $4.17 billion on revenue of $16.6 billion in the quarter. Microsoft reported $0.47 earnings per share, below analyst projections.

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Microsoft was expected to post earnings per share of $0.49, on revenue of $17.08 billion, according to the consensus expectation from analysts polled by Thomson Reuters.

Microsoft also said it will cut up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources, and IT over the next 18 months. The first 1,400 jobs will be cut on Thursday.

Microsoft projected that the job cuts will trim its annual operating expense run rate by $1.5 billion and reduce its fiscal 2009 capital expenditures by $700 million.

The layoffs are being implemented due to IT spending that fell lower than the company's expectations for the quarter. Microsoft said in a statement that it "acted quickly" to reduce its costs.

Microsoft warned that its revenue and earnings for the second half of the year relative to the previous year will be "almost certainly" lower.

The company said it can't provide quantitative revenue and earnings-per-share guidance for the rest of the year due to "the volatility of market conditions."

After the results were announced, Microsoft's share price fell to around $18.05, down $1.31 in early-morning trading.

Software client revenue fell 8 percent, as PC sales slumped and buyers turned to low-cost netbooks, the company said. Annual software license fees pushed server and software tool revenue up 15 percent, while entertainment and devices revenue grew 3 percent on the back of holiday demand for the Xbox game console.

An earnings call with CEO Steve Ballmer is scheduled for 11 a.m. Eastern Time.

(Peter Sayer in Paris and Marc Ferranti in New York contributed to this report.)

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