Microsoft will reduce its operating expenses by as much as $500 million this fiscal year in the face of growing economic uncertainty, the company's chief financial officer told analysts today. The company earlier reported first-quarter earnings that beat Wall Street's expectations, but it also reduced its earnings projections for the year.

Here's a portion of the remarks made by Chris Liddell, the company's CFO, during Microsoft's call with analysts.

For the first two months of this quarter, we experienced much the same economic conditions as we saw during the second half of fiscal 2008, with demand actually a little better than our historic seasonality. However, in September, as the credit crisis unfolded, many partners and customers were faced with market uncertainty and credit restrictions, which impacted the rate at which they purchased software. We're seeing this continue into October, and while we're optimistic about the actions the governments have taken to unfreeze the financial markets, there will inevitably be some spillover. ...

In the near term, we're reassessing our business plan and pulling back spending in lower-priority areas. As a result, built into our guidance is a $400 to $500 million decrease in operating expenses. This savings can be categorized as follows. Lower head-count related costs, as we've reviewed our hiring plans, and making adjustments to our head-count growth. Lower marketing expenses, as we're adjusting our spending plans to correspond to our updated economic outlook. Lower (capital expenditures) on data centers, and other general savings, including travel expenses and vendor services.

These savings will progressively layer in, translating into economic savings in particular later this year, and carrying forward into the next fiscal year, as well. We are also putting in place other initiatives on a contingency basis that we can either dial up or down as we see economic changes unfold. If macroeconomic conditions worsen, then we will endeavor to reduce our operating expenses accordingly.

Those comments are likely to get lots of attention among Microsoft's employees. In the past, cutbacks in operating expenses have meant reductions in employee perks. The big question: Will the free towel service survive?