Microsoft is laying off 5,000 workers after the software vendor Thursday morning reported that sales grew a paltry 2 percent year-over-year in its second quarter ended Dec. 31 and earnings plunged 11 percent.
Microsoft will eliminate up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources and IT operations over the next 18 months, including 1,400 Thursday. The company also will reduce spending on outside vendors and contingent staff, facilities, capital expenditures and marketing.
The layoffs and other cost-cutting steps will reduce the company's annual operating expenses by $1.5 billion and capital expenditures for fiscal 2009 by $700 million, the company said.
Microsoft said sales for the second quarter were $16.63 billion, up 2 percent from the same period one year ago. Net income was $4.17 billion, down 11 percent.
Sales of client software dropped 8 percent "as a result of PC weakness and a continued shift to lower-priced netbooks," the company said in a statement. But server and tools revenue grew 15 percent because of "strong annuity licensing." Entertainment and devices revenue grew 3 percent, driven by what the company said was strong holiday demand for Xbox 360 consoles.
"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," CFO Chris Liddell said in the statement. He added that Microsoft is 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."
"While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach," CEO Steve Ballmer said in the statement. "We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than we are today."
Ballmer, Liddell and Chief Accounting Officer Bill Koefoed will hold a conference call at 11:00 Eastern Thursday to offer more details about the second-quarter results and the layoffs.
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