Microsoft reported an 11 percent drop in net income for its fiscal second quarter compared to the year-earlier period. Revenue was up two percent to $16.63 billion, but profit was $4.17 billion, or 47 cents a share, versus $4.71 billion and 50 cents a year earlier.

Analysts had expected earnings per share of 49 cents. Microsoft’s stock dropped to around $17 a share in late trading.

The software giant said economic conditions and a weak PC market in the year-ending quarter negatively impacted its Windows division, where revenue fell eight percent. A continuing shift to lower-priced netbooks plus hurt the company’s profit margins.

But CFO Chris Liddell assured investors that Microsoft would reply to “volatility in the macroeconomic environment” by implementing a $1.5 billion reduction in operating expenses.

“The economy clearly has deteriorated more than we expected,” Liddell said during a conference signal. “We have initiated a number of cost-saving steps which we shall layer in by the course of the next year.”

Hitting the Brakes

Among other things, Microsoft will freeze pay raises and cut up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources, and IT by the next 18 months, including 1,400 jobs now. “We are plus looking for reductions in marketing expenses and discretionary spending,” Liddell said.

The 5,000 job cuts are all internal positions, Liddell noted. “Outside contractors are not included in that number, and we additionally will certainly be looking at reducing that,” he said.

Still, Microsoft CEO Steve Ballmer said that even as the company eliminates some jobs, it will be adding more workers in key areas to take advantage of whatever market opportunities lie ahead.

“We don’t plan on shrinking, but we are putting the brakes on,” Ballmer told investors. “We are going to continue to invest in urgent areas of opportunity…

[Source] dhiram