Microsoft Serves Up a Big Plate of Misery

Updated from 11:19 a.m. EST

Microsoft (MSFT Quote) pulled out the ax on 5,000 employees as it joined the growing legions of tech shops crushed by a slumping global economy.

And while the software giant pointed to lower than expected tech spending, it's clear that the market's continued rejection of its Windows Vista products and a lack of any traction in new markets outside desktop software haven't helped.

As Intel's (INTC Quote) series of warnings served to show, the rise of stripped-down netbooks, which hold special appeal to a cash-constrained consumers, has helped undercut the sales of conventional PCs running on Microsoft's Vista software.

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The crimped spending combined with the shift toward netbooks puts a particularly ominous cloud over the PC sector giants like Dell (DELL Quote) and Hewlett-Packard (HPQ Quote). Even non-Vista computer players felt the pinch as Apple demonstrated with its earnings report Wednesday. Apple (AAPL Quote) sold 3% fewer Macs in the typically stronger December quarter than it did in the previous quarter. An especially rare feat given that the company had an all new Macbook line up.

The Redmond, Wash. software giant posted earnings, excluding one-time items, of 47 cents a share, down from 50 cents in the year-ago period. Analysts had expected an adjusted profit of 49 cents, according to First Call.

Sales for the quarter ended last month were $16.6 billion, up slightly from the $16.3 billion level last year but below the $17.08 billion mark analysts had expected.

Microsoft's miss took its share price down more than 10% to $17.39 and led the Nasdaq down 27% in afternoon trading.