SEATTLE -- Microsoft Corp. will make the first mass layoffs in its 34-year history, cutting 5,000 jobs as demand for personal computers falls and even one of the world's richest companies gets burned by the recession. The company announced the cuts Thursday as it reported an 11 percent drop in second-quarter profit, which fell short of Wall Street's expectations. Microsoft shares plunged more than 10 percent in midday trading. "We're certainly in the midst of a once-in-a-lifetime set of economic conditions," Chief Executive Steve Ballmer said during a conference call. With less access to credit, businesses and consumers are stretching the life span of their computers. The biggest names in the technology sector have been no stranger to layoffs lately. Giants such as chip maker Intel Corp. and even Google Inc. are among the companies that have pulled back on jobs to hunker down in the recession. At Microsoft, the cuts appeared to reflect uncertainty about when times will get better. The company said it could not issue a forecasts for earnings and profits for the rest of the year. The software maker was already facing tough problems, among them its inability to snag a significant share of the lucrative Web search advertising market from leader Google Inc. It tried to fix this by buying Yahoo Inc. and pouring money into its own technology, all the while relying on Office programs such as Word and Excel, and on Windows to keep bringing home huge profits. Now, with the recession pinching software earnings, Microsoft's problems seem even harder to fix. Microsoft, which has $20.7 billion in cash on hand, said its business prospects were hurt by the deteriorating global economy and lower revenue from software for PCs. The holiday quarter of 2008 was the worst for the PC market since 2002, with computer shipments declining about a half of 1 percent, according to IDC, a technology research group. Making matters worse, the one type of PC consumers have warmed to in tight times - the low-cost, low-power "netbook" - actually cut further into Microsoft's earnings. The tiny portable computers run on Windows XP, which is older and less profitable for Microsoft than Windows Vista. The layoffs, starting with 1,400 on Thursday, will affect workers in research and development, marketing, sales, finance, legal and corporate affairs, human resources and information technology, and mostly in Redmond, Wash., where the company is based. The cuts are expected to touch virtually every division and include the computer programmers who write code for existing and future applications. Employees reached by The Associated Press declined to comment on the news, saying it was against company policy to speak to reporters. Microsoft had never done layoffs on this scale before - it had only made relatively limited staff cuts after acquiring companies or reorganizing product groups. The software maker won't stop hiring entirely. During the conference call, Ballmer said the company will add new jobs in the next 18 months to support key areas, including Web search, so the total number of employees will drop by 2,000 to 3,000. Microsoft employs 94,000 people overall. "I would have expected a more aggressive cut," said Cowen and Co. analyst Walter Pritchard. "They're trying to have their cake and eat it too, in terms of not cutting and hoping to have everything they were going to have before." The software maker is trimming costs for travel, freezing wages, scaling back a massive expansion to its Redmond campus and looking to cut what it spends on contractors and vendors by up to 15 percent. Ballmer said Microsoft cut operating expenses by $600 million in the quarter, but that it wasn't enough. The job cuts will reduce operating costs by $1.5 billion as Microsoft prepares for lower revenue and earnings in the second half of the year, the company said. Chief Financial Officer Chris Liddell said during the call that Microsoft will write down severance costs for the 1,400 workers laid off on Thursday in the third quarter, and record the rest as they occur. Liddell said he expects the total charges to be less than $100 million. Liddell told analysts to expect the second half of the year to look about as grim as the second quarter, with weakness persisting in Windows sales as PC shipments remain depressed. Beyond the next six months, Ballmer added that he doesn't expect the technology sector to bounce back to recent highs. Instead, said he expects the stagnation to persist for a year or more, followed by slow growth. Microsoft said profit in the last quarter fell to $4.17 billion, or 47 cents per share, from year-ago earnings of $4.71 billion, or 50 cents per share. Total revenue edged up 2 percent to $16.63 billion. The results missed Wall Street's forecast for earnings of 49 cents per share on sales of $17.08 billion. Microsoft shares fell $1.85, or 9.6 percent, to $17.53 in afternoon trading after sinking to a 52-week low of $17.19 earlier in the day.