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Microsoft 'mulling thousands of redundancies'

Microsoft's 3,000 employees in the UK face an uncertain 2009 as the software giant considers a plan for substantial redundancies to combat the economic downturn.

At least 10 per cent, and possibly as much as 17 per cent, of its global workforce could be cut in what would be the first mass lay-offs in the company's 32-year history. Across the world, up to 15,000 jobs could be under threat.

According to rumours in the US, overseas divisions could be particularly hard hit, and an announcement of the plan could come within two weeks. The company said yesterday that it does not comment on speculation.

Analysts say the software giant faces pressure on several fronts this year. With retail spending having turned down, consumer sales of its Windows operating system – installed on nine out of ten personal computers – could slow. Businesses, too, are scaling back, threatening licence fees from its Office products, including Microsoft Word, and other corporate software. Meanwhile, online advertising growth has decelerated sharply as a result of the recession, threatening Microsoft's hopes of turning a profit at its troubled MSN internet business.

"The prevailing wisdom on Microsoft is that the company may pre-announce disappointing December results," Brad Reback, analyst at Oppenheimer & Co, told clients. "Should such headcount reductions materialise, we would view them as a positive sign that management is interested in preserving the company's operating margin structure through the downturn."

A 10 per cent cut in Microsoft's 90,000 global workforce could save $1.2bn (£826m) a year, analysts say. A Silicon Valley website reported over the new year holiday that up to 17 per cent of Microsoft's employees could lose their jobs, citing internal conversations at the company. The website, Fudzilla, said that the European divisions may be disproportionately affected.

Microsoft set up its UK subsidiary in 1982, its first overseas outpost, seven years after Bill Gates created the company to make operating systems for the nascent personal computer market. Employees are concentrated at the UK headquarters in Reading, although the British division of MSN is run from London. The company has almost doubled in size in the UK in the past five years.

Microsoft is due to report earnings for the final three months of 2008 on 21 January, but could pre-announce any revenue shortfall and any restructuring plans.