The company, which posted lower quarterly earnings than analysts expected, blamed the deteriorating global economy and lower revenue from software. The 2008 holiday quarter was the worst PC market in several years.
Microsoft will cut 1,400 jobs immediately and will announce the rest of the cuts by June 2010. The cuts are estimated to save around $1.5 billion in operating costs and $700 million in 2009 capital expenditure.
The layoffs seem to be the first for the software company, founded in 1975, except for relatively minor staff cuts made after acquiring companies.
"Economic activity slowed beyond our expectations in the quarter, and we acted quickly to reduce our cost structure and mitigate its impact," said Chris Liddell, Microsoft's chief financial officer, 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."
The Redmond, Wash.-based company says its profit slipped to $4.17 billion, or 47 cents per share, from a year-ago earnings of $4.71 billion, or 50 cents a share.
The job cuts at Microsoft come on the heels of a Labor Department report showing that new job loss claims rose to 589,000 in the week ending Jan. 17, up 62,000 from the previous week.
This new total of unemployment matches a 26-year high reached four weeks ago. While the last time claims were this high was in November 1982, the work force has grown by about half since then.
The freshly minted Obama administration, in an attempt to address the declining job market, is proposing to extend jobless benefits, which usually last around six months, and overhaul the unemployment insurance system. The changes are part of an $825 billion stimulus package currently being considered in the House of Representatives.
In yet another sign of a declining economy the Commerce Department reported that new home construction fell 15.5 percent to a record low last month. The report capped off a miserable year for new home construction, with builders breaking ground for only 904,000 units last year, the lowest since records began in 1959.