A respected US-based technology blog has caused a storm after claiming that Microsoft is planning to announce the first major redundancies in its 34-year history.

The unsubstantiated story on the Fudzilla site claimed earlier this week that the scale of the layoffs could be a swingeing 17 per cent of its headcount.

"The rumour that Microsoft was set to lay off people on January 15th, 2009 is no longer a rumor but a fact. Staff at Microsoft have been informed that the company is readying major layoffs to its worldwide operations and it's not a small cut, either".

The report went on to say that of the Microsoft headcount of around the 90,000 mark, up to 15,000 job losses could be announced when the company makes its Q2 earnings report later this month.

Although the huge figure looks speculative, a clarification posted on the site has suggested that most of the cuts could fall on Microsoft's large number of agency and temporary staff - jobs not necessarily counted in its 90,000 total - on small divisions not making money, and especially in divisions in non-core services such as MSN.

It is hard to believe that Microsoft would retrench in such a dramatic fashion, even if it had to. It seems more likely that the company would scale back slowly, worried that massive job losses would dent its reputation for defying the sort of industry woes that have long afflicted its rivals.

It is also true to say that taking some pain now would cause its share price to rise - the company's share price has declined by more than a third in the last year, better than declines seen by some rivals but still disheartening for investors.

More pressing given next week's CES show, is the perceived weakness of the company, solid earnings or not.

The company's Internet Explorer browser has conspicuously lost market share to open source rivals Mozilla over 2008, while Vista has become a standing joke, even for some Microsoft insiders. Cloud Computing and virtualisation point to the rise of a very different Microsoft in the next few years, but that transition could take time.

What is now clear is that even if Microsoft announces job losses on a much smaller scale to those being suggested by Fudzilla, the Microsoft of the future will be smaller and leaner than today's company.

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