Recession hit Microsoft to cut 5,000 jobs

Microsoft Corp shocked Wall Street on Thursday with disappointing results and said it would slash up to 5,000 jobs and stop offering profit forecasts for the rest of the fiscal year.

The world's top software maker blamed the weakness of the PC market and the popularity of low-cost netbook computers for the miss.

Its shares fell 8 per cent in early trading. Microsoft posted a profit of $4.17 billion, or 47 cents per share, in its fiscal second quarter ended December 31, versus a profit of $4.71 billion, or 50 cents, a year earlier.

Analysts were looking for earnings per share of 49 cents, according to Reuters Estimates.

Revenue rose 2 per cent to $16.63 billion, missing the average analyst forecast of $17.1 billion. “Clearly business conditions are worse than people were expecting,” said Richard Williams, analyst at Cross Research.

“This is a substantial amount of jobs cuts. Microsoft has never had a layoff like this in my knowledge and it's sending a signal that the times are definitely changing.”

Microsoft said it will eliminate up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources and information technology over the next 18 months, including 1,400 jobs on Thursday.

That amounts to about 5 per cent of its estimated 95,000 work force. Microsoft said these moves would help cut its annualized operating expense by about $1.5 billion and reduce fiscal year 2009 capital expenditures by $700 million.

The company will also cut travel spending by 20 per cent, eliminate merit salary increases in September, and significantly reduce spending on vendors and contingent staff.

It also plans to scale back budgets for marketing and the expansion of its Puget Sound campus. “Economic activity and IT spend slowed beyond our expectations in the quarter,” Chief Financial Officer Chris Liddell said in a statement.

“We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year.”

Shares of Microsoft fell to $17.84 in early trading on the Nasdaq, from their previous close of $19.38.