Redmond-based Microsoft Corp. eliminated 1,400 jobs Thursday morning, including 872 at its Redmond campus — and there are more cuts to come.

Microsoft announced that it is taking “steps to manage costs, including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing.”

A Microsoft spokesperson told the Redmond Reporter, “As part of the process of adjustments, we will eliminate 5,000 jobs in R&D, marketing, sales, finance, LCA, HR and IT over the next 18 months, of which 1,400 will occur today. Every division is assessing its portfolio and prioritizing investments based on the best opportunities in the current economic environment. While there are no major products being cut outright, we will consolidate some products and groups where it makes sense.”

The majority of Thursday’s job eliminations (872 jobs) were in Redmond, consistent with the high concentration of employees based at Microsoft headquarters in the Puget Sound area. For most impacted employees, job responsibilities will end effective Jan. 23.

The cuts will reduce the company’s annual operating expense run rate by approximately $1.5 billion and reduce fiscal year 2009 capital expenditures by $700 million.

Redmond Mayor John Marchione was out of town Thursday, flying back from Washington D.C. where he attended Tuesday’s presidential inaguration.

“We understand Microsoft must assess its assumptions and planning needs in the current economic environment and we will work together with the company to do so. Redmond is home to many international companies and we are well aware of the challenges facing them at this time and have worked to prepare the City’s finances accordingly.”

Congressman Dave Reichert , who represents the 8th Distirct, which includes Redmond, made the following statement after Microsoft’s announcment:

“As a member of the House Ways and Means Committee, I’m working closely with my colleagues to craft stimulus legislation that will include measures to create an engine for growth and have a proven record of job creation — broad-based tax relief for individuals and businesses, opening new markets for trade, and fostering incentives for growth.

“GENEROUS SEVERANCE”

We asked what type of severance or job placement assistance might be offered to employees whose jobs are being eliminated.

“There are too many variables involved to answer that specifically,” according to the Microsoft spokesperson. “Some jobs currently open will be filled by those affected by the layoffs. For others we will provide generous severance and outplacement services to help their search for a new job. Severance benefits will be available to impacted individuals. While the specific severance benefits will vary by country, impacted employees in the U.S. may be eligible for a minimum of 60 days of pay, as well as severance pay that is calculated on tenure and level.”

Microsoft also announced that it will slow construction plans “in tandem, as appropriate given our slower headcount growth this year. We will continue to invest in creating a work environment for our employees where they can do their best work, including investment in an appropriate workspace.”

A webcast of a phone conference featuring Steve Ballmer, chief executive officer; Chris Liddell, senior vice president and chief financial officer; Frank Brod, corporate vice president and chief accounting officer; and Bill Koefoed, general manager of investor relations has been posted on Microsoft’s Web site at http://www.microsoft.com/msft/default/mspx.

PLANNING FOR UNCERTAINTY

In written statements provided to the media, Liddell stated, “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. 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.”

While announcing its second-quarter results, as of Dec. 31, 2008, Microsoft reported revenue of $16.63 billion, a 2 percent increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.94 billion, $4.17 billion and $0.47, declines of 8 percent, 11 percent and 6 percent, respectively, compared with the prior year.

Client revenue declined 8 percent as a result of PC market weakness and a continued shift to lower priced netbooks. However, strong annuity licensing drove Server & Tools revenue growth of 15 percent. Entertainment and Devices revenue grew 3 percent, driven by strong holiday demand for Xbox 360 consoles, with a record six million units sold in the quarter.

“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 Ballmer. “We will continue to manage our 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.”