YAHOO Inc's leaders still have jobs despite investor misgivings about their decision making, but at least 1,500 workers will be laid off after the company's profits tumbled yet again in the third quarter.

The 10-percent reduction in Yahoo's payroll of 15,000 employees served as another stark reminder of the challenges facing a management team led by Jerry Yang as the deteriorating economy casts even more doubts about the Sunnyvale, California-based company's turnaround plans.

Although Yahoo's third-quarter profit plunged 64 percent, the cutbacks announced on Tuesday are a small step in the right direction, said Cantor Fitzgerald analyst Derek Brown. "But it seems like there is still a lot more work that needs to be done."

Yahoo is bracing for a deep downturn likely to extend well into 2009 by trimming US$400 million from its annual expenses of US$3.9 billion. Besides shedding 1,500 workers during the next two months, Yahoo may close some of its United States offices and assign more jobs to lower-paid contractors in other countries.

"We are going into what is very clearly a recession mode," Blake Jorgensen, Yahoo's chief financial officer, said in a Tuesday interview.

Yahoo's determination to rein in its expenses seemed to please investors, who have been disillusioned with the company's direction for years.

Yahoo shares gained nearly 7 percent in extended trading on Tuesday after ending the regular session at US$12.07, down 79 cents.

But Yang has a long way to go to justify Yahoo's decision to spurn Microsoft's takeover bid of US$33 a share last May. Microsoft withdrew the offer after Yang balked at the price, asserting his management team was pursuing a strategy that would prove the firm was worth than the software maker's US$47.5-billion bid.

"The heat is definitely still on Yang." said Canaccord Adams analyst Colin Gillis.

The purge outlined marks the second time in nine months that Yahoo has used mass layoffs in what so far has been an ineffectual effort to rebound from a financial funk that has left its stock price near a five-year low.

Yahoo is pursuing these cutbacks more aggressively than its last round of layoffs in February.