Microsoft said it was unable to give a profit outlook
Microsoft has said it will cut up to 5,000 jobs over the next 18 months, including 1,400 immediately.
The firm also reported a net profit of $4.17bn (£3bn) for the three months to 31 December, down 11% on last year and less than analysts' expectations.
Microsoft added it was "no longer able" to give a profit and revenue outlook for the fiscal year amid current volatile market conditions.
Shares in Microsoft fell 7.9%, dragging Wall Street lower.
"While we're 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.
Richard Williams, an analyst at Cross Research, said: "Microsoft has never had a layoff like this in my knowledge, and it's sending a signal that the times are definitely changing."
Microsoft said the announced job cuts would take place in research and development, marketing, sales, finance, legal, human resources and information technology.
It added it would also be making other cost-cutting measures, including a reduction in spending on travel.
"These initiatives will reduce the company's annual operating expense run rate by approximately $1.5bn and reduce fiscal year 2009 capital expenditures by $700m," Microsoft said.