Separate from number of links you have is their value. This appears to be an area of significant change in this update. Areas that appear to have reduced value in regards to affecting PageRank are:

1. Multiple links from same site or run-of-site links Intelligent and relevant reciprocal links do not seem to have been penalized, probably due to increased relevancy factor. If you reduce value of irrelevant links and raise value of relevant ones then there is no need to penalize reciprocal links as, done incorrectly, they will penalize themselves.
2. Links with text around them that indicate they are purchased such as "Partners", "Advertising", etc. Google has and is actively trying to reduce value of paid links. This appears to have been moderately successful where there is clear indication that link is paid for.
3. Links from sites that hold little relevancy (this factor is based on educated speculation) The relevancy factor appears to have become more important. Links from sites with content related to yours is showing positive results while sites with larger numbers of less relevant links are showing drops in PageRank.

What Does This Mean?

For those of you who have been proactive in your link building, and focused on relevant sites using Google Directory, searches or a tool like PR Prowler it means, "stay course". Those of you who have been building or buying links based only on PageRank with little concern for it's location, or how it is presented - you will need to adjust your link building efforts accordingly.

What Do I Do - My PageRank Dropped ?!!?

The first thing not to do is panic. Take a deep breath, PageRank is one factor of dozens that Google uses to determine ranking of your page, it is not only thing. Now, visit your main competitors sites - there's a good chance you'll see that they too dropped in PageRank. The plus side to these kinds of updates is that they're universal. It's not as if Google has it in for you specifically and so when they do an update, positive and negative impact is felt by all.

Now, if you've noticed that everyone around you has stayed same or increased in PageRank try to remember this, there's nothing you can do about where you're currently positioned in regards to PageRank and it will probably be another 3 months before Google updates public PageRank again so ... start building some good quality (high relevancy, solid PageRank) links, work towards and increase in next update.

Panicking now won't help, intelligent reaction will.

What Happens Now?

Traditionally search engine results will begin to fluctuate based on new visible PageRank 3 to 7 days after they are visible. This does not have to be case as Google's had these numbers all along but it's worked this way in majority of cases in recent history. So monitor your search engine positions over next week or two and watch for changes. Try to hold back on making major changes to your site during this time as often final positions will differ from those that can be viewed during shuffling. In a couple weeks time evaluate where you stand and tweak your site as necessary but don't spend too much time on that ... you have a solid link building effort to undertake.

Page Caching Google is best for this because of how fast it continues to reindex pages. Create your own Google Cache Calendar – a Word or Excel document will do. List your strategic pages – say about 10 for starters. Apply Top 300 rule, check your rankings and record cache dates. Over time, those dates form patterns that can help you determine when Google will return next – enabling you to time your next set of SEO updates.

If you’re not in Top 300, you can still get some perspective from page cache analysis if you’re still planning to optimize a given page. It’s easy to find page – if it’s in Google’s index. Just enter URL as your search phrase or find some unique text from page and search for that string of words with quotes on each end. Either will result in a top SEO ranking and you can grab cache date.

The bottom line is that you need to track you’re progress before making changes to strategic SEO pages.