Microsoft's net income fell 11 percent for the quarter ended December 31, 2008. Because of this, and despite a 2 percent revenue rise, 5,000 jobs are being cut, Microsoft has announced.
Microsoft made a net profit of $4.17bn on revenue $16.6bn in the last quarter of 2008.
Software client revenue fell 8 percent, as PC sales slumped and buyers turned to low-cost netbooks. Annual software licence 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 360 game console.
Microsoft 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 today.
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.
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