Microsoft today reported quarterly results that included a rare loss in its staple Windows and Office businesses. Although its revenue climbed slightly year-over-year to $16.63 billion this fall, the company's client group revenue dropped 8 percent in the same period along with an 11 percent drop in its net income, which sits at $4.17 billion. The company cites the poor world economy as a factor but specifically blames netbooks for the shortfall as buyers opted for the low-cost PCs, which often carry less expensive Windows XP Home licenses instead of Vista.

The decline in the company's key business is prompting the company to institute its first-ever mass layoffs. Approximately 5,000 workers will lose their jobs in the near future with 1,400 of these jobs being cut effective immediately. Microsoft acknowledges that some of the positions will be in its key research and development fields as well as in marketing, sales and other less essential positions.

CEO Steve Ballmer in an internal memo obtained by All Things D reveals that the move follows already existing cost-cutting of about $600 million and confirms extra steps to try and bring Microsoft's expenses in check with the financial crash. He acknowledges reductions in building expansion as well as reductions in travel costs, marketing, vendors and merit salary increases due later this year. Ballmer explains the rare cutbacks as difficult given the company's roots but also necessary.

"Our people are the foundation of everything we have achieved and we place the highest value on the commitment and hard work that you have dedicated to building this company," he says. "But we believe these job eliminations are crucial to our ability to adjust the company’s cost structure so that we have the resources to drive future profitable growth."

Microsoft nonetheless has some positive news for the quarter, such as a 3 percent growth in its Entertainment and Devices group on the back of 6 million Xbox 360 sales for the holidaysas well as a 15 percent boost to its Server & Tools group thanks to annual licensing. The company also has hope for Windows 7 and is unofficially expected by many to release the improved operating system as early as the summer.

No statistics are given specifically for its historically low-performing Zune business or for Windows Mobile, which is usually rolled into the client group.