Sources tell TechFlash that Microsoft (MSFT) will make additional job reductions this week–beginning as early as today. Cuts are expected to number in the hundreds–smaller than those made in January and May, but ugly just the same.

“As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations,” Ballmer said in May. Given that Microsoft posted declines in revenue and profits in its latest quarter, I suppose this week’s rumored “action” was inevitable.

UPDATE: Cuts are indeed being made today–800 of them. Here’s the official word from Microsoft:

“Earlier this year, we announced that in order to reduce costs, increase efficiency and prioritize our focus areas, we would eliminate approximately 5,000 positions by June 2010. Today, we are eliminating around 800 positions spread across multiple businesses and locations and have completed our reduction plan sooner than we had anticipated 11 months ago. At the same time, we continue to hire in priority areas, but also understand that continuing to manage our businesses closely, as we always do, can mean additional headcount adjustments.”

In a research note issued this morning, Bernstein analyst Toni Sacconaghi wondered whether Oracle (ORCL) might even consider walking away from the deal, though he ultimately concluded that it was unlikely.

“Given ORCL’s repeated and strident commentary, it appears very unlikely that it will walk away from the deal, although it would not face a break-up fee if it did (unlike Sun, which faces a $260+ million break-up fee),” he wrote. “We continue to believe that the JAVA-ORCL deal is very likely to close, but it will be interesting to see if Oracle’s conviction level waivers at all on its earnings call today.”

Indeed. Certainly, there are plenty of reasons to think that it might. For one thing, notes Sacconaghi, Sun’s (JAVA) recent financials are going to make it difficult for for Oracle to hit its promised $1.5 billion in first-year accretion profits.

“Our forecast now calls for [Sun] to be barely break even on a non-GAAP basis next year,” Sacconaghi says, adding that earnings are likely to be nearly $900 million less than he modeled when the deal was first announced. “Accordingly, assuming no material revenue synergies, our analysis suggests that in order to hit its $1.5B accretion target, Oracle may need to reduce Sun’s workforce by 15,000, which represents over 50 percent of Sun’s current headcount and appears implausible.”

So Oracle could hit its aggressive Year One accretion targets. It would just have to gut Sun to do it.

One last point worth noting here. Sacconaghi seems confident the European Union will ultimately approve Oracle’s acquisition of Sun, though possibly with conditions around mySQL. But he thinks approval will take time. And the longer it takes, the worse it will be for Sun, whose business is already suffering from the uncertainty surrounding it.

“…The EU took an average of 140 days between the time that a Phase II [review] was announced and a merger was ultimately approved,” he explains. “Given that Phase II for the JAVA deal was announced on September 3rd, this implies a January date for resolution, and would require JAVA to go through another two full quarters as a standalone company. With uncertainty around the ORCL deal already weighing on JAVA, this suggests the potential for further erosion in Sun’s financials.”

“That the worldwide mobile phone market started off 2009 with a year-over-year decline highlights just how much the economic recession has affected all industries, including the wireless market,” Ramon Llamas, IDC senior research analyst, said in a statement. “The market continues to adapt to the new economic reality with both vendors and retailers exercising caution to remain profitable. In some cases, this has meant holding less inventory, or even reducing headcount. Fortunately, new features and demand for phones will help the market resist the financial pressure. We expect to see further year-over-year declines worldwide, even as some regions show signs of improvement.”

Over at Mini-Microsoft, the Redmond insiders who frequent the site’s comments are incredulous over the layoff rumors, insisting that they are baseless. Costs will be cut, they say, but they will be cut through attrition and reduction in open headcount. “For the last time folks–THERE ARE NO LAYOFFS HAPPENINGS IN JANUARY,” writes one Mini-Microsoft commenter. “Beyond Jan…well we dont have a crystal ball–but if the economy doesn’t improve and the company misses targets–it would get uglier for everyone–from no raises/no bonuses to (maybe) cutbacks/layoffs… but then, those are the rules of the game in corporate America.”

Ugly news for the company’s workforce, which has already seen its headcount reduced by 4,600 this year as part of a reorganization of AT&T’s shrinking landline business.

Shares of AT&T (T), which have dropped by about 30 percent this year, slipped another 2.7 percent in pre-market trading.

The cuts were made across the company and, according to AT&T spokesman Walt Sharp, are not an indication of weakness in the business. Said Sharp: “This is part of our ongoing evaluations to streamline the business. It’s about having the right people in the right job. … We’re shifting headcount to areas where the customers are.“