The layoffs appear to be a first for Microsoft, which was founded in 1975, aside from relatively limited staff cuts the software company made after acquiring companies.

Drop in profit

The company announced the cuts as it reported an 11 per cent drop in second-quarter profit, which fell short of Wall Street's expectations. Microsoft shares plunged seven per cent to US$18.04 in morning trading.

Microsoft said it was being hurt by deteriorating global economic conditions and lower revenue from software for PCs.

The holiday quarter of 2008 was the worst the PC market had seen in several years.

The Redmond-based company said profit fell to US$4.17 billion, or 47 cents per share, from year-ago earnings of US$4.71 billion, or 50 cents per share.

Drop in revenue

Total revenue edged up two per cent to US$16.63 billion, as software for corporate computer servers helped offset an 8 per cent drop in revenue for PC software.

The results missed Wall Street's forecast for earnings of 49 cents per share on sales of $17.08 billion.

Microsoft said the job cuts will reduce operating costs by $1.5 billion as it prepares for lower revenue and earnings in the second half of the year. The company says it is unable to offer profit and revenue guidance for the rest of the year, because of the market volatility.

- AP