Microsoft's revenue rose 2 percent for the quarter ended December 31, but net income fell 11 percent, it said Thursday.
The company made a net profit of US$4.17 billion on revenue $16.6 billion in the quarter.
Microsoft said it will cut up to 5,000 jobs in research and development, marketing, sales, finance, legal, human resources and IT over the next 18 months. The first 1,400 jobs will be cut Thursday. These are not the first Microsoft layoffs, but it's inarguably the largest.
Software client revenue fell 8 percent, as PC sales slumped and buyers turned to low-cost netbooks. Annual software license fees pushed server and software tool revenue up 15 percent, while entertainment and devices revenue grew 3 percent on the back of holiday demand for the Xbox game console.
Microsoft had warned analysts that it may not meet earnings forecasts and rumors had begun that layoffs were likely.