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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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January 22, 2009 6:08 AM

Microsoft cutting 1,400 jobs today; up to 5,000 in next 18 months as recession hits harder

Posted by Benjamin J. Romano

In a press release issued moments ago, Microsoft announced that it is cutting up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources and IT in the next 18 months, starting with 1,400 today.

It marks the first company-wide layoff in Microsoft's history and comes as the company reports fiscal second-quarter earnings that missed the low-end of its own guidance for sales and earnings per share. Its Windows business declined 8 percent as PC sales growth ground to a virtual halt in the quarter ended Dec. 31.

More coverage of Microsoft's cost-cutting

Ballmer's e-mail to employees

Majority of cuts to be in Redmond; total reduction is roughly 3 percent
Contractor spending could be cut up to 15 percent
Attention turns to what groups will see cuts
Gregoire calls layoffs "disheartening"

"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 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."

The company has pulled its financial guidance for the remainder of the 2009 fiscal year, which ends June 30, blaming "the volatility of market conditions going forward."

CFO Chris Liddell said in a statement, "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. In this environment, we will focus on outperforming our competitors and addressing our cost structure."

The only guidance the company offered is its expected operating expenses for the full fiscal year: $27.4 billion.

Microsoft executives are expected to talk with analysts about the second-quarter earnings announcement and cost-cutting plans at 8 a.m. The earnings report and conference call was originally scheduled to take place after the close of the stock market.

Microsoft's second-quarter results were:

Sales: $16.63 billion, up 2 percent from a year ago, but well below the low-end of Microsoft's guidance of $17.3 billion to $17.8 billion and the consensus of Wall Street analysts, which was $17.08 billion.

Earnings per share: 47 cents, down 6 percent from a year ago, and also below the low-end of the company's guidance of 51 cents to 53 cents, and the consensus of Wall Street analysts, 49 cents.

In addition to the job cuts, Microsoft is eliminating merit increases in the 2010 fiscal year, which begins July 1, the company disclosed in its quarterly report, filed with the SEC.

This, combined with job cuts, and an already announced series of steps to trim expenses, is expected to "reduce our annual operating expense run rate by approximately $1.5 billion," the company wrote in the report.

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