Speculation is brewing across the interwebs that Microsoft may announce up to 15,000 layoffs this month. Sources on the Redmond campus, who describe the departments as fragmented, say they’ve heard gossip, but nothing certain. Some have seen budget cuts and hiring freezes in their departments. One source describes the mood as “cautious” and says staffers are “worried.” Most at risk, they believe, are the battalions of temporary contract employees.

According to MSNBC, one person at Microsoft says the company isn’t planning layoffs, but allowing attrition to its 90,000-person staff as contracts expire. The source also says says the rumors are "grossly exaggerated," but adds that "any company not paying careful attention to headcount in a climate like this is nuts."

Meanwhile, the Seattle P-I reports today that Microsoft is backing out of negotiations for 300,000 square feet of office space in South Lake Union. The decision could indicate the company is finding alternative cost-saving measures—instead of layoffs—or that things are truly dire. The Seattle Times reported last week that some employees abruptly lost their contracts. Most of this remains highly speculative, of course, as Mircrosoft employees are notoriously bound by ball-gag to remain mum. A nameless Microsoft spokesperson, says the company "does not comment on rumors or speculation." Got theories as to what's going on? Send me an email.

UPDATE: A tipper reports on the not-technically-a-mass-layoff strategy...

My understanding after surveying friends is that Microsoft is doing its usual elimination of duplicate groups where they cancel one project and tell those people they have x amount of time to find another job in the company. Since most of the time the people in the canceled groups don’t have a lot of qualifications for other jobs or seniority with the company what happens is after x amount of time those people end up out of a job. It is not, in Microsoft’s eyes a layoff per se, but the net result is the same.

Another reader on the programs getting cut...

Nearly all recruiter contractors are gone at this point. There is a hiring freeze across all of Office and Windows, and you can expect pie-in-the-sky projects to go away. Onecare, for example, has been cut, and also expect a lot of cuts in MSN. I understand "streets and trips" is on the way out as well.

Another reader on the bindings of foreign labor...

Microsoft can't easily fire anyone without letting the employees on H-1B visas go first, and many of them are more valuable to the company than their American counterparts. Instead, they'll be ... eliminating unprofitable groups altogether. The employees of those teams will have to look for others to join, but won't be able to find a new place due to the hiring freeze. An ingenious firing method!