Releasing its results for the second quarter of its fiscal year, Microsoft said net profit fell by 11 percent from a year ago to 4.17 billion dollars on revenue of 16.63 billion dollars, a two percent rise over a a year ago.

The Redmond, Washington-based company said earnings per share were 47 cents for the quarter which ended on December 31, less than the 49 cents per share forecast by analysts.

Microsoft's shares fell 8.31 percent in early trading on Wall Street to 17.77 dollars.

"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," Microsoft chief executive Steve Ballmer said in a 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," he said.

"In light of the further deterioration of global economic conditions" Microsoft said it was eliminating "up to 5,000 jobs in R&D (research and development), marketing, sales, finance, legal, HR (human resources), and IT (information technology) over the next 18 months, including 1,400 jobs today."

Microsoft employs some 91,000 people and the job cuts announced on Thursday amount to a reduction of about 5.5 percent of its global workforce. Rumors of job cuts at the world's biggest software firm had been circulating for weeks.

Microsoft said the move was among various steps designed to manage costs "including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing."

"These initiatives will reduce the company's annual operating expense run rate by approximately 1.5 billion dollars and reduce fiscal year 2009 capital expenditures by 700 million dollars," Microsoft said.

Ballmer, in a memorandum to employees obtained by the AllThingsDigital technology blog, said "consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures.

"Our response to this environment must combine a commitment to long-term investments in innovation with prompt action to reduce our costs," he said, adding that "the decision to eliminate jobs is a very difficult one."

"But we believe these job eliminations are crucial to our ability to adjust the company's cost structure so that we have the resources to drive future profitable growth," Ballmer said.

The company founded by Bill Gates declined to release an outlook for the remainder of the fiscal year, citing the "volatility of market conditions going forward."

Microsoft chief financial officer Chris Liddell said "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.

"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," he said.

Reflecting the overall weakness in personal computer sales, Microsoft said revenue from software sales fell eight percent to 3.98 billion dollars in the quarter.

Revenue from the server and tools sector grew 15 percent, the company said, while revenue from the entertainment and devices division rose three percent, driven by strong holiday demand for Xbox 360 consoles, which sold a record six million units in the quarter.

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