AOL to Lay Off 1,700 Amid Sluggish Market
Stung by an economic slowdown and sluggish advertising market, America Online said Tuesday it would lay off 1,700 employees worldwide--or nearly 11% of its work force.
The cuts--expected to come over the next few days--rank among the deepest in AOL’s history and mark the second round this year. The Dulles, Va.-based Internet company slashed 725 jobs in January after closing its merger with media giant Time Warner.
“It’s a tough market,” said AOL Chief Executive Barry Schuler in an interview Tuesday. “Everyone has to run their business efficiently. We don’t feel like we’re cutting too deeply.”
Company officials said the cuts would fall evenly throughout its business units, but did not provide specific breakouts.
About 500 of the 1,700 layoffs will occur at Palo Alto-based IPlanet E-Commerce Solutions, a software alliance formed with Sun Microsystems after AOL’s 1999 purchase of Netscape Communications. After that purchase, AOL laid off 825 workers.
“This is something we do every year,” Schuler said, noting that the company also added 2,000 jobs over the last 12 months. “This is a business that changes a lot. We’re in a fast-moving environment.”
Analysts said the Internet company is paying the price for promises made by its parent, New York-based AOL Time Warner Inc., which has assured Wall Street that it will boost earnings this year by 30%. As growth at other AOL Time Warner properties has slowed this year, the Internet division has become the star performer.
“They are definitely shouldering more than their share of the weight and they’re doing a good job of it,” said John Corcoran, analyst at CIBC World Markets.
Corcoran said he did not believe the layoffs would cut too deeply or slow revenue growth. “They’re trimming the fat,” Corcoran said. The cuts will save the company about $85 million a year, he estimated.
As part of the restructuring, AOL Time Warner said it will take a charge of $100 million to $125 million in the third quarter, which ends Sept. 30.
News of job cuts--first reported a week ago--sent AOL Time Warner’s stock down sharply as investors worried that AOL Time Warner was scrambling to meet its financial targets.
Stock in AOL Time Warner closed Tuesday at $39.90, down 31 cents, in New York Stock Exchange trading. The layoffs were announced after the markets closed.
In recent weeks, several analysts have lowered their expectations for revenue and operating earnings, citing the advertising slowdown and dot-com slump.
“The cost-cutting is not surprising given how difficult the economy remains and the obvious evidence that the market is not coming back,” said Fred Moran, analyst at Jeffries & Co. in New York.
AOL joins a growing list of corporations that have shed jobs in recent weeks, including Agilent Technologies Inc., Fujitsu Ltd. and ExciteAtHome Corp.
AOL also announced Tuesday that it will consolidate several of its business units, and create several new ones.
The flagship AOL online service and Digital City will be consolidated into a new AOL Interactive Services Group, led by Jonathan Sacks. Netscape, CompuServe, Moviefone, MapQuest, ICQ and AOL Instant Messaging will be bundled into AOL Web Properties, headed by Jim Bankoff.
AOL Broadband will focus on high-speed Internet services, while AOL Anywhere will oversee the expansion of AOL services beyond desktop computers. AOL Interactive Marketing Group will generate marketing partnerships for AOL brands; Vertical Markets Group will create new programming and advertising opportunities.
“We’ve grown through acquisition and have a lot of little units spread throughout the country,” Schuler said. “The changes are designed to take advantage of what we think is going to happen in the next couple of years in the Internet.”
