Microsoft is likely to employ cost-cutting measures in the upcoming months to help it maintain a strong position during the economic downturn, according to a fresh wave of reports.

The latest indications suggest that the firm will hold back on hiring new staff and not renew contract employees, rather than instigate a major lay-off operation.

Restructuring plans could be announced ahead of Microsoft's second-quarter earnings statement due on 22 January.

Rumours began early last week when US blog Fudzilla claimed that Microsoft was planning large-scale redundancies of up to 17 per cent of its global workforce.

Microsoft would not comment directly on the issue and instead pointed vnunet.com to a SeattleTechReport blog posting, in which the software giant said hiring plans continued to be under review.

"The fact that Microsoft employs a lot of contractors will give them a cushion," said Jon Collins, an analyst with Freeform Dynamics. "It will allow them to hone resourcing without creating redundancies."

Collins explained that, although Microsoft may be facing lower profits owing to factors including poor Vista sales, the company is still in a strong position compared to its competitors.

If Microsoft does reduce its headcount, it will be down to the firm taking advantage of an opportunity to cut costs while receiving little publicity for doing so, rather than because of absolute necessity, according to the analyst.