Microsoft cutting 5,000 jobs on weak results

Microsoft said Thursday its sales and earnings for the December quarter fell well below expectations and announced a series of cost-cutting moves, including its first-ever companywide layoffs.

The software maker said it will cut up to 5,000 jobs, or 5 percent of its workforce, over the next 18 months. About 1,400 jobs were eliminated immediately. The software maker is also paring other expenses, such as delaying salary increases and cutting back on vendors and contractors.

Amid slow PC sales, revenue for the quarter came in at $16.63 billion for its fiscal second quarter that ended December 31, up just 2 percent from a year ago and roughly $900 million less than the company previously projected. Per-share earnings came in at 47 cents, also below forecasts.

Sales in the Windows unit were down 8 percent, amid not only a drop in PC unit sales but also a shift to lower-price Netbooks, for which Microsoft receives less money. The drop in Windows sales was partially offset by strength in the company's server and Xbox divisions.

"Economic activity and IT spend slowed beyond our expectations in the quarter, and we acted quickly to reduce our cost structure and mitigate its impact," 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. In this environment, we will focus on outperforming our competitors and addressing our cost structure."

In its press release, the company said that "due to the volatility of market conditions, going forward, Microsoft is no longer able to offer quantitative revenue and (earnings per share) guidance for the balance of this fiscal year." It said it expects its operating expenses to be about $27.4 billion for its full year ending June 30.

The layoffs are the first across-the-board reductions in Microsoft's ranks in its history, though it has cut jobs in certain areas or locations in the past. Although Microsoft plans to cut 5,000 jobs in total, its overall workforce is not expected to drop that much, as it continues to hire--albeit at a lower rate--in key areas. Overall, CEO Steve Ballmer said in an email to workers that the total workforce will probably drop by 2,000 to 3,000 jobs.

Jobs eliminated include positions in product research and development, sales, HR, legal, finance, information technology and other areas.

Rumors of the cuts had been growing over the past month or so, with some reports suggesting the company could slash more than 15 percent of its workforce and others holding out hope the company could trim costs without laying off full time workers. Fears heightened on Wednesday when workers found themselves unable to access the company's internal, online organizational chart.

The cost-cutting moves, which also include delaying raises and further cuts to its vendor and contractor ranks, should cut its annual operating expenses by $1.5 billion and reduce fiscal-year 2009 capital expenditures by $700 million, Microsoft said.

The software maker had been scheduled to report earnings after the market closed Thursday. The company moved up its analyst conference call as well, which CNET News covered live here.