Chief executive Steve Ballmer, speaking to analysts, 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 per cent 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 will 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 per cent 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 per cent overnight."