Corel said it would take a one-time charge of up to $6.3m (£4m) this quarter to pay for costs related to the layoffs.
The move comes 14 months after the company spun off its Linux operating system business to start up Xandros - a company working on a Linux-based operating environment offering Windows compatibility - so Corel could focus on its desktop productivity and graphics applications.
Like many other companies, Corel has been hard hit by the slow economy and cutbacks in IT spending during the past two years. The staff reductions will come from all departments within the company.
"Corel has made a commitment to run the business profitably, regardless of the prevailing economic conditions, and the measures we have implemented today position us to achieve that goal," said president and chief executive officer Derek Burney.
"Today's actions are necessary for us to realise the company's strategy to build long-term value for our shareholders and continually improve the experiences of our customers."
Burney added that while the company expected revenue growth in 2003, Corel was "adopting a conservative approach in aligning our cost structure to reflect the company's current revenue patterns".
In August, Corel signed up PC makers Hewlett-Packard, Sony and Dell Computer to include its WordPerfect 10 word-processing software and Quattro Pro 10 spreadsheet program on consumer desktop PCs as a lower-cost alternative to Microsoft Office. Last month, Gateway joined the pack by announcing it would bundle WordPerfect with some of its consumer PCs.
Corel estimated that the deals would boost sales and revenue by including its products on some three million HP Pavilion machines and about one million Dell machines in the next year.
Stephen O'Grady, an analyst at Illuminata, said that while those deals sounded as though Corel was making progress, Wednesday's layoffs are troublesome.
The deals "seemed to show that they'd found a niche", he said. "Were they going to be a billion-dollar company? No. But it showed there was a niche for a non-Microsoft play."
Gartner analyst David Smith said that the recent deals, while good for the long-term health of Corel, would not appear to do much to bring in adequate new revenue now.
"It's certainly not something that affects revenues in the current quarter," he said. "It doesn't happen that fast."