Yahoo! is cutting 1,000 jobs — nearly 7 per cent of its workforce — in the biggest round of job cuts by the US internet giant since the dot-com crash.

The group said that it was making “profound changes” to the way it operates after being hit by intense competition and falling advertising as companies cut back in the tougher economic climate.

Last night Yahoo! reported a 23 per cent plunge in fourth-quarter profits to $205.7 million (£102.8 million). Overall revenue rose 8 per cent to $1.83 billion.

Jerry Yang, the chief executive, said that the company was facing “headwinds” that could last throughout 2008.

He added that it needed to adjust to emerge stronger in 2009.

“We’re making profound, fundamental changes to virtually all aspects of our business,” he said.

Redundancies had been seen as a foregone conclusion, with reports in the US this month that the company, a star of the dot-com boom, may eliminate as many as 2,500 staff.

The 1,000 announced by Mr Yang represent the biggest round of layoffs since the tech bubble burst at the beginning of the decade.

Details of where the axe will fall are expected in the coming weeks.

Mr Yang, a co-founder of the company, had been conducting a review of the business since the middle of last year.

Yahoo! has been hit hard by a fall-off in advertising spend across the financial, travel and retail sectors.

Analysts believe that its larger share of the corporate display ad market make it more vulnerable than the likes of Google, whose model is based on receiving money each time someone using its search engine clicks on a company's ad.

Yahoo! said that the focus of its investment this year would be in creating a large-scale network for buying and selling online advertising to generate higher revenue next year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive