Microsoft Thursday denied that core development work for Longhorn, its next version of the Windows operating system, was being done by contractors in India. Earlier this week, the Washington Alliance of Technology Workers in Seattle said that it had learned from Microsoft's internal documents that the company was outsourcing core development of Longhorn to Indian contractors.Microsoft\u00a0Thursday\u00a0denied\u00a0that core development work for Longhorn, its next version of the Windows operating system, was being done by contractors in India. Earlier this week, the Washington Alliance of Technology Workers in Seattle said that it had learned from Microsoft's internal documents that the company was outsourcing core development of Longhorn to Indian contractors.WashTech's opposition to outsourcing to Indian contractors misses a key point, which is that Microsoft is offshoring key product development to its own software development center in Hyderabad in South India, according to analysts who added that in either offshore model, the high-end work moves out of the U.S."The Hyderabad center is an extension of our development activity at Redmond," said a spokeswoman at Microsoft India. "Teams here work together with the teams in the U.S. on product development. Our partners don't work on core product development." The spokeswoman could not however confirm whether the Hyderabad center was doing work on Longhorn.The Hyderabad center also has full development ownership for some Microsoft products such as Services for Unix, which lets customer integrate Windows into their Unix environments, and Visual J#.NET, a Java language development environment for the .Net platform. Microsoft said earlier this year that it was increasing the number of staff at this center from 200 to about 500 by 2005."The documents suggest that the contractors and employees are involved in high-level development projects and not just low-level work such as call center customer service," WashTech said in a report this week on its Web site. The contractors named are Wipro in Bangalore, HCL Technologies in Noida, Infosys Technologies in Bangalore and Satyam Computer Services in Hyderabad."The documents we have show contracts on file," said Marcus Courtney, president of WashTech. The contract with Infosys, for example, says it is for a Longhorn Migration Guide, while a contract with Wipro refers to\u00a0Telephone API (TAPI) testing for Longhorn and other products, according to Courtney.The documents also suggest that the contractors, besides doing work offshore in India, also send their staff to Microsoft's development sites, according to Courtney."As a global company with operations in more than 80 countries, we do work with thousands of partner companies around the world," said Stacy Drake, a Microsoft spokeswoman, via e-mail. "However, top Microsoft executives, including Bill Gates and Steve Ballmer, have clearly stated that the majority of our core development work will remain in the U.S., and further, all intellectual property development, including Longhorn, is (being) done by Microsoft employees."Of Microsoft's total R&D budget in fiscal year 2004, only 4% was for work done by outside companies, and less than 1% was for work done by partner companies outside of the U.S., Drake added.Microsoft recently outsourced the development of a software promotion application that will ship with new PCs, Drake said while giving examples of work outsourced by Microsoft. The company has also outsourced compatibility testing for server and Windows components, which requires the contractor to replicate problem scenarios faced by Microsoft customers, reproduce the bug and provide more information for Microsoft's full-time employees to fix the problem, Drake said.