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Software giant Microsoft Corp. said Thursday it will eliminate up to 5,000 jobs, including 1,400 this month, to reduce costs.

The company announced the cuts as it said its second-quarter earnings dropped by 11 per cent, missing the expectations of Wall Street analysts.

Redmond, Wash.-based Microsoft said the cuts will come from its research and development, marketing, sales, finance, legal, human resources and IT divisions. Details on possible cuts in Canada were not immediately available.

The company also said merit pay increase will be eliminated for employees in its 2010 fiscal year, while operating expenses will be reduced by cutting travel expenditures, reducing spending on vendors and contingent staff, reducing marketing spending, and scaling back capital expenditures.

In a regulatory filing with the U.S. Securities and Exchange Commission, the company said the moves are expected to reduce its annual operating expenses by approximately $1.5 billion US.

"For the remainder of fiscal year 2009, we expect the economic conditions experienced during the first six months to further deteriorate," the company said in its filing.

"Given this, we are focused on executing in the areas we can control by continuing to provide high value products at the lowest total cost of ownership while managing our expenses."

Microsoft said plans are being finalized, but that the costs of employee severance will be included in its third-quarter results.

For the second quarter, Microsoft said it made a profit of $4.17 billion US, down fom $4.71 billion US a year earlier as the personal computer market experienced a weak holiday period. Microsoft's per-share profit of 47 cents were two cents under Wall Street expectations.

The company also said it is unable to give profit and revenue guidance for the remainder of this year, citing market turbulence.