Silicon Alley Insider is reporting that Yahoo is preparing to lay off up to 20% of its 12,000 strong workforce, a big purge as the Sunnyvale based company attempts to become more profitable.

Talks of staff downsizing at Yahoo have been doing the rounds since former CEO Terry Semel left Yahoo in June.

Despite traffic to Yahoo properties remaining ahead of Google (according to comScore), YHOO stock has performed poorly over the last twelve months months as the company has failed to convert that traffic to strong profit growth, unlike Google.

SAI’s source claims that the move is about improving the outlook for Yahoo and strengthening its position so it can remain a standalone company by increasing the share price. We don’t know directly but this seems to be logical reasoning. There will be a lot of Yahoo employee’s who will not be enjoying their Martin Luther King holiday long weekend now this news has leaked.

If you’re working for Yahoo and know more, drop us a line.

Update (Arrington): I’ve been on a plane all day, but have some additional facts on this (we were holding the story until early this week per our source’s request): The layoffs will be 10%-20% and are being recommended by the executive team after a recent offsite. The board will make the final decision at a meeting two days before the next earnings call on January 29. Layoffs will likely be announced then.

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