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Yahoo said its net profit slumped nearly 80% in the first three months of the year and that it will trim its workforce by 5%.

First quarter net income came in at $117.6m, or eight cents per share, compared to $536.8m, or 37 cents per share, during the same time last year.

CEO Carol Bartz said:

“Yahoo is not immune to the ongoing economic downturn, but careful cost management in the first quarter allowed our operating cash flow to come in near the high end of our outlook range.

“With our leading audience properties, substantial reach and innovative advertising solutions, we are confident Yahoo will be well positioned when online brand advertising resumes its growth.”

More layoffs are expected in the coming weeks. About 5% of its current work force may be cut to allow “flexibility for accelerated strategic investments and targeted hiring in its core operations.”

Yahoo’s earnings were in line with analyst expectations. During a conference call last night, Bartz refused to discuss the possibility of Yahoo selling its online search business to US software colossus Microsoft.

Last year, Microsoft made an unsuccessful takeover bid of $47.5 billion. Its intention is to leverage on Yahoo’s prized search engine asset in order to to close the gap on Google, which currently rules more than 60% of the US online search market.

Speculation that talks between Yahoo and Microsoft might be resurrected has persisted since Bartz replaced Yahoo co-founder Jerry Yang as chief executive in January.