Microsoft stokes contractor job fears

Microsoft has declined to end speculation it will axe 15,000 employees and not renew some IT contractors under a widely expected company-wide strategy to cut costs.



The software giant told CUK it would not comment on rumours lighting up the blogosphere that it will use its trading update on January 22 to thin its ranks by 17%.



One blog – Fudzilla – said a "large chunk" of the eliminations may hit IT freelancers, which analysts told this website was now an "accepted response" to profit pressures.



Cutting reliance on external IT staff, a strategy already in place at archrival Google, would allow Microsoft to say its 95,000-strong direct workforce remains in tact.



The most vulnerable contractors in UK IT departments were identified last night as those on transformation projects, particularly those in retail, logistics and transport.



Contractors working in consolidation or virtualisation, projects that yield short-savings, were much safer, said David Mitchell, vice president of IT research at Ovum.



At Microsoft, the vulnerable contractors seem to be those in its browser unit, as fresh stats from NetApplications show market share for IE has eroded in recent months.



In line with this, a report by the Seattle Times stated 180 contract workers at Microsoft were told last month that their contracts for services would not be renewed.



This echoes anonymous whispers to another US-facing title, CNBC, from inside MS that the cuts will be mainly achieved via attrition and the non-renewal of IT contracts.



Elsewhere, other outfits are offering hefty pay cuts - of up to 25% a day at one non-financial client, which IT recruiters say is the lesser evil of a receding contract market.



But it is not just jobs that are in decline: Pierre Audoin Consultants says the UK project services market will shrink by 0.5% in 2009, down from growth of 3.5% last year.



"This illustrates the significant drop in IT consulting and integration projects, and hence [the] negative knock on effect on contract staff," said PAC analyst Rajeena Brar.



"With lay offs being announced across the industry, there will be increased unemployment in the contractor community [which] will help bring contractor rates down."



Meanwhile, no let up in the financial pressures will result in more clients moving towards outsourcing, at the expense of in-house solutions, Mr Mitchell said.



"This might, in some circumstances, work out well for IT contractors - provided they can be flexible with their rates.



"Contracting for the outsourcer rather than the direct client will be an option for some, where on-site skills and client knowledge will be valued."



He added that while a continuation of today's economic conditions will affect the contract market "quite deeply", there are "spots where it's not completely doom and gloom."