Microsoft is to lay off more than five per cent of its workforce after posting disappointing financial results.

The company is cutting 1,400 jobs immediately, and a further 4,000 over the next 18 months. The cuts will be made in research and development, marketing, sales, finance, legal, human resources and IT.

"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," said Chris Liddell, chief financial officer at Microsoft.

"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 company is also freezing bonuses for the year, cutting back on development for the Puget Sound campus and slashing marketing and travel budgets.

Microsoft's second-quarter earnings show an 11 per cent drop in profit, with revenues up only two per cent at $16.6bn (£12.1bn), some $900m (£660m) less than the company had predicted.

Client revenue fell by eight per cent, while the entertainment division grew by just three per cent. The server and tools segment did well, with revenues up 15 per cent.

"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," said Microsoft chief executive Steve Ballmer.

"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."

Analysts were highly critical of Microsoft's job cuts during the earnings call this morning. Several expressed the opinion that more cuts were needed in staffing levels.

"These bleak result show how dependent Microsoft still is on the sale of new PCs," said Directions on Microsoft analyst Matt Rosoff.

The company has tried to broaden its business over the past few years but is still largely dependent on rising computer sales.

Rosoff said that the only computer segment to show significant growth this year has been netbooks. While Microsoft still had 70 to 80 per cent of the netbook market, it is unable to charge as much in licensing fees as it could for fully fledged systems.

The analyst also pointed out that, while the consumer computer market is weakening very quickly, the business market is still holding up well.

While Microsoft and Intel reported bad results, IBM is doing well, and Redmond's Server and Tools division was reporting good results.