Chief executive Steve Ballmer, speaking to analysts here, said the current situation could be described as "an economic reset."

"You don't beat it, you manage in this environment," he said. "You think of it as a reset that might take several years to really reset, and then we need to really think about 'What do we invest in?'

"You've got to ask 'What is the business reset that goes with the economic reset?'" he said.

Chief financial officer Chris Liddell said Microsoft expects "conditions to remain difficult at least through the second half (of the year)."

Ballmer said he did not expect further reductions after cutting 5,000 jobs last month, or 5.5 percent of the workforce of the Redmond, Washington, software giant.

He acknowledged that Microsoft's Web browser, Internet Explorer, has lost market share to other browsers such as Mozilla's Firefox and said the company would work to turn that around.

"We are losing browser share," Ballmer said. "We think that browser share is important, browsers are key features of operating systems, and we have a lot of work to do in that dimension."

Ballmer dismissed speculation Microsoft would enter the mobile telephone market by building its own handset, although he said it will continue to develop software for mobile devices.

Ballmer reiterated that Microsoft remained interested in a partnership with Yahoo! on Internet search to try to compete with Web search king Google, which accounts for some 63 percent of the market.

He said Microsoft would continue to try to improve its share of the Web search market although it was unreasonable to expect it to "go from four percent to 25 percent overnight."

Microsoft shed 0.23 percent to 17.17 dollars on Wall Street on Tuesday, closing near its 10-year low.

related report
Microsoft not to ask for money from laid-off workers
Microsoft on Monday said it goofed in trying to get back money it overpaid departing employees in severance packages and sent word to the former workers to keep the cash.

The US software giant said that last week it told 25 recently-departed employees they had accidentally been paid too much in severance and that the overages should be returned to the company.

"This was a mistake on our part," a Microsoft spokesman said Monday in response to an AFP inquiry.

"We should have handled this situation in a more thoughtful manner. We are reaching out to those impacted to relay that we will not seek any payment from those individuals."

Microsoft did not disclose the total number of recently-released workers that it believes got mistakenly inflated severance packages, or the overall amount of money overpaid.

Last month, Microsoft announced the most sweeping job cuts in its history as a worsening economy and weak spending on technology sent quarterly profit sharply lower.

Releasing its results for the second quarter of its fiscal year, Microsoft said it was cutting up to 5,000 jobs, or 5.5 percent of its workforce, over the next 18 months.

The Redmond, Washington-based company said net profit fell by 11 percent in the quarter from a year ago to 4.17 billion dollars on a revenue of 16.63 billion dollars, a two percent rise from a year ago.

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