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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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January 15, 2009 11:27 AM

Local analyst sees job cuts of 6 to 8 percent at Microsoft, lowers earnings estimate

Posted by Benjamin J. Romano

With Microsoft's fiscal second-quarter earnings a week away, analysts are chiming in with their expectations. In a report to investors this morning, Sid Parakh of McAdams Wright Ragen writes: "[C]hecks indicate that Microsoft is likely to reduce headcount in the near-term to the tune of 6,000 - 8,000 employees, or 6% - 8% of its ~95,000 employee workforce. Underperforming employees are the most likely targets in the expected reorganization."

That follows a Wall Street Journal report that Microsoft is "seriously exploring significant work force reductions" to be announced perhaps during earnings, and our story today, reporting that at least some Microsoft employees are bracing for a reorganization announcement today.

Parakh offered additional commentary on the cost cuts:

"Our checks also indicate that the company has already and will continue to reduce its ~40,000 contractor/consultant workforce notably. Budget cuts are also expected, some to the tune of ~30%, we hear.

"As such, while our checks indicate that headcount cuts may be lower than rumored, we nevertheless believe
these to be prudent measures that also imply added management focus on margins in a tough environment."

He's lowering his second quarter revenue estimate from $17.4 billion to $16.8 billion, and his earnings per share estimate from 51 cents to 48 cents.

Friedman Billings Ramsey analysts also lowered their second quarter revenue estimate from $17.2 billion to $17 billion, but kept earnings per share the same at 50 cents. Here's what the analysts are seeing, by operating segment:

Lower revenue for "client, server and tools, online services business (OSB), and Microsoft business division (MBD) to take into account (1) the lower-than-expected PC shipment data, and (2) ongoing checks that indicate a continued deterioration of the IT spending environment. We are increasing our FY2Q revenue estimate for the entertainment and devices division (EDD) to take into account better-than-expected Xbox sales."

Coverage note: NPD is scheduled to report December video game sales this afternoon. Check back for details.

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