Microsoft Corp. stunned Wall Street with disappointing results that included plans to slash up to 5,000 jobs and a warning that profit and revenue will almost certainly drop over the next two quarters.
The company blamed the miss on the weak PC market and the popularity of low-cost netbook computers, which have combined to badly undercut sales of its Windows operating system.
"Our financial position is solid ... but it is also clear that we are not immune to the effects of the economy," chief executive officer Steve Ballmer told employees in a letter. "Consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures."
The market has become so volatile, Microsoft cautioned, that it will not issue earnings or revenue forecasts for the rest of its fiscal year ending June 30, 20, other than to predict both will very likely be lower.
Microsoft posted a profit of €3.2 billion, or 47 cents per share, in its fiscal second quarter ended December 31, versus a profit of €3.6 billion, or 50 cents per share, a year earlier. Analysts were looking for earnings of 49 cents per share, according to Reuters Estimates.
Revenue rose two per cent to €12.8 billion, missing the average analyst forecast of €13.2 billion.
Sales in the Windows segment fell eight per cent, while its business division, responsible for the Office software package, marked a one per cent increase. Revenue at the unit that makes the popular 360 Xbox gaming system rose three per cent.
Looking ahead, the Windows business is expected to perform in line with the weak traditional PC market, Microsoft said.
Microsoft's staggered elimination of 5,000 jobs - 1,400 immediately and the rest over 18 months - amounts to about five per cent of its estimated 96,000 work force, the biggest reduction ever by the software maker. Other cost cuts include travel and marketing budgets, and the roster of independent contractors.
Microsoft faces a shift by PC buyers to netbooks, which are smaller, stripped-down laptops. Microsoft only gets €46 or less for each sale of Windows for a netbook, compared to €69 for traditional laptops, according to Enderle Group analyst Rob Enderle.
Chief financial officer Chris Liddell said he does not expect significant acquisitions this year, despite hopes from some Yahoo shareholders for a buyout.