Wall Street's reaction was lukewarm, after two previous Yahoo CEOs failed to find an answer to rivals like Web-search leader Google and the Facebook social-networking site.

Sunnyvale, California-based Yahoo, which ended 2011 with some 14,000 employees, said it would save $375 million annually from the cuts and incur a pre-tax cash charge in the second quarter of $125 million to $145 million.

The company declined to comment on severance details.

Some analysts were skeptical about the widely expected layoffs, which weren't accompanied by details of Yahoo's broader plan to revamp its business.

"You can't cut your way to revenue growth," said Colin Gillis of BGC Partners. "What people want to see out of Yahoo is ... a plan and provision for revenue growth."

Third Point, an activist hedge fund that is waging a proxy fight to install a slate of handpicked directors on Yahoo's board, described the layoffs as "necessary."

But the hedge fund, Yahoo's largest shareholder with a 5.8 percent stake, said in a statement that it was "disappointed that this round of cuts occurred before CEO Scott Thompson has articulated his strategic plan for the company."

Thompson, in all-staff memo obtained by Reuters, said the changes would transform Yahoo into a leaner outfit that focuses on its main businesses, which he identified as "core media and communications," "platforms" and "data."

"The changes we're announcing today will put our customers first, allow us to move fast, and to get stuff done," Thompson said in the memo, adding that the changes would result in a "smaller, nimbler, more profitable" company.

"We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities," Thompson wrote in the memo.

Macquarie Research's Ben Schachter saw the layoffs as a start in determining the new direction of the company.

"Scott Thompson is not there to tweak the business," Schachter said. "He saw something in the assets to make him think there was potential."

A Yahoo spokeswoman said that every organization within the company was affected by the layoffs but that some groups were affected more than others. She declined to specify the groups most affected.

Yahoo said it would provide more details of its plans when it releases first-quarter results on April 17.

The layoffs come as Yahoo's revenue declines due to competition from Google and Facebook. Last year, Yahoo's revenue totaled $4.98 billion, compared with Facebook's $3.71 billion, accomplished with just 3,200 employees.

Yahoo is also fighting a battle with hedge fund manager Daniel Loeb.

Loeb, who runs Third Point, is seeking to appoint four new directors to Yahoo's board. Third Point, with a 5.8 percent stake in Yahoo, is the company's largest shareholder.

Yahoo's shares ended down 0.6 percent $15.27 on the Nasdaq. The Nasdaq market dropped nearly 1.5 percent.

(Editing by John Wallace, Maureen Bavdek, Tim Dobbyn and Steve Orlofsky)

• A Permanent Economic Emergency