While this isn't the first time Microsoft has cut employees, the move is somewhat uncharacteristic for the 70,000-employee company that has been adding staff by the thousands each year.

In 2004, Microsoft laid off 76 people in the Xbox unit. In 2003, the company cut more than 150 Microsoft Consulting Services employees from the payroll.

Microsoft's fiscal 2006 ends on June 30. On June 28, Microsoft made some internal tweaks to its channel and Microsoft Business Solutions units, moving its Small and Mid-market Solutions and Partners (SMS&P) group to report to Chief Operating Officer Kevin Turner. As part of the move, former SMS&P head Orlando Ayala is moving to the emerging markets group.

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"Microsoft's U.S. sales organization is reorganizing to better align a subset of its field and headquarters positions more closely with the needs of its enterprise customers and partners," said a company spokesman.

Microsoft is reducing "select regional and operational positions," as well as some "roles in which more specialized skills are needed," the spokesman added.

At the same time, however, Microsoft is creating 66 new "customer-facing" positions in U.S. sales, for which employees who are cut will have an opportunity to apply, the spokesman said.

Among the positions being cut are corporate account reps and business-development reps, according to reports from individuals close to the company, who asked not to be named.. The enterprise partner and public sector units within U.S. sales are the most directly affected, sources added.

Rumors that Microsoft was planning a reduction in force (RIF) have been circulating for a while on the Mini-Microsoft blog. But layoff talk picked up in earnest on June 28.

Microsoft officials said the layoffs were not the result of Microsoft putting more focus on its services business as a result of growing competition with Google.

Posters on the Mini-Microsoft site had their own theories.

"RIFs in this company do not and will not happen company wide," said one anonymous poster on Mini-Microsoft. "They will happen on a group by group basis. For those of you in underperforming groups that are incapable of shipping a decent product, be worried. For those of you in bloated groups that actually ship, you're probably safe. For those of you in lean, mean groups that ship products regularly and frequently, I would love to work for Google too :-)."

"MS leaders need to realize what the market already has, that the growth investors have moved on and our 'new' institutional investors want predictable revenues, reasonable dividends and steady incremental growth. No $2.4 billion spending surprises or chronic failures to deliver our flagship products on time," said another anonymous poster.

"The sooner senior leadership realizes this, the less painful the transition period will be. I think steveb is unwilling or unable to accept the facts. Him going would probably send the right signal to the Street to get our stock on the up again, as long as the RIFs and -effective- re-orgs continued apace. It might give us the breathing space to get back on track and get back to being what we should be...the best software company in the world, in terms of product and business culture," the same poster added.