All is not well in Redmond. Unlike Apple with its record earnings this past year, Microsoft has struggled with the down-turning economy and will be laying off about 5,000 employees over the coming eighteen months. A mass firing of this size is unprecedented for the software giant. The first 1,400 employees will be let go today.

This is a pragmatic move on Microsoft's part; though it continues to be wildly profitable, earnings have been dropping. Rather than run itself into the ground, the company is planning ahead, trying to balance the size of its workforce against its profitability. The staffing reduction, along with other savings measures like reducing travel, should save Microsoft over $1.5 billion annually.

Despite this massive setback for the employees and their families who will be affected, Microsoft should end up OK. The 360 continues to sell strongly, and while Vista has received a reception that's lackluster at best, the buzz around Windows 7 has been very encouraging. In any case, we're talking about billions of dollars in excess profit here, so the company has a long way to fall before it's out.

The other big losers for the moment might be the shareholders, as the market reacted to the news by lowering its valuation of Microsoft shares by eight percent. Apple, on the other hand, has had its shares rising in value all afternoon, after a turbulent morning.

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