Yahoo on Wednesday began dropping the axe on employees, following through on a promise to cut its workforce by at least 10 percent in an effort to right its financially listing ship.

As Yahoo began its second round of layoffs this year, an investment firm, Ivory Investment Management, which owns a 1.5 percent stake in Yahoo, urged the firm's board to sell its Internet search business to software giant Microsoft.

Yahoo announced plans to dump some 1,400 employees after reporting in October that the weak economy had cut deeply into the California Internet pioneer's third-quarter profits.

Layoffs of most US Yahoo workers were happening Wednesday and were already underway in other parts of the world, Yahoo's beleaguered co-founder and outgoing chief executive Jerry Yang wrote in an email to employees.

"This is a tough time for all of us," Yang wrote. "The reductions we're making are very hard, but they are also very necessary as we focus on the long-term health of our business."

Yahoo has been losing ground on the Internet to companies such as Google, MySpace and Facebook and the economic slowdown has hurt the firm particularly hard as advertisers cut back on spending.

"My impression is that this will be the first of several layoffs Yahoo will have to do," said analyst Rob Enderle of Enderle Group in Silicon Valley.

Yang announced last month he is stepping down as chief executive, and Yahoo is currently seeking a successor to turn the company around.

Among the supposed contenders is Arun Sarin, recently retired head of British mobile telephone powerhouse Vodafone Group PLC.

"Clearly, Yahoo is hunting for a turn-around guy," Enderle said. "And those guys trim the company to its core to get it growing again or package it for sale."

Turn-around executives are notoriously merciless when it comes to getting rid of employees or divisions not considered key to a company's success.

"Right now, Yahoo is simply too bloated and unable to move," Enderle said. "They lack agility and a turn-around manager would be the one to get it agile."

Ivory Investment Management maintained that Yahoo could get 15 billion dollars up front for its search business from Microsoft, which is eager to better compete against Google in the lucrative arena.

Such a deal would let Microsoft bear the cost of operating online search at Yahoo websites while Yahoo gets a share of advertising revenues that could bolster its annual cash flow by as much as 500 million dollars, Ivory argued.

"This deal would offer Microsoft the unique opportunity to immediately gain critical mass to better level the playing field with Google," Ivory managing partner Curtis Macnguyen wrote in a letter to Yahoo's board of directors.

"It would simultaneously allow Yahoo to both receive a sizable upfront cash payment and increase its prospective cash flow."

Microsoft chief executive Steve Ballmer said last week that the software giant remains interested in acquiring Yahoo's search business.

Yang and Yahoo's board earlier this year rejected a 47.5-billion-dollar bid by Microsoft for the company, earning the disapproval of many shareholders.

"Getting rid of search might be a wise thing for Yahoo," Enderle said. "They can't afford a battle with Google right now."

Yahoo would be better off leveraging its hundreds of millions of users worldwide into a colossal social-networking community, according to the analyst.

"Yahoo is much better funded and bigger than Facebook or MySpace. That is more of a battle that Yahoo could probably win."