ECON - Another round of layoffs at AOL

greenspun.com : LUSENET : Current News : One Thread

AOL Internet Unit to Get Hit with Layoffs - Sources

By Reshma Kapadia

NEW YORK (Reuters) - Another round of layoffs is about to hit AOL Time Warner Inc., this time at the company's Internet unit, as the media giant tries to ensure it will meet its 2001 financial targets, sources familiar with the situation said on Monday.

The sources said the timing and the exact number of cuts at the unit, often referred to as the company's ``crown jewel'' by executives, was still unclear. The unit, which is based in Dulles, Virginia, employs about 16,000 people.

A company spokesman declined to comment.

The cuts would be the second major round of layoffs at the world's largest Internet and media company this year. Some analysts said such cuts were expected given the current economic climate.

``Although the cuts are probably more aggressive than they would have been in a better economy, they are still well within the realm of 'efforts to create inefficiencies' versus restructuring,'' said Merrill Lynch analyst Henry Blodget.

He added that even if the company lays off ``hundreds,'' it would represent only 2 percent to 3 percent of the company's almost 90,000 employees and should not have a lasting impact on sentiment toward the stock.

``Many strong companies lay off the weakest 5 percent of the workforce every year -- even in a strong economy -- just to maintain the highest possible intensity,'' Blodget said.

Many of its peers have also had job cuts. Walt Disney Co. DIS.N said in March it would cut 3 percent of its global workforce or 4,000 jobs, and Internet media giant Yahoo! Inc. YHOO.O said in April it would cut 12 percent of its 3,510-person staff.

Shares of AOL Time Warner were off $1.12, or 2.5 percent, at $43.18 shortly after midday on the New York Stock Exchange (news - web sites).

After completing its $106.2 billion merger in January, the company cut about 2,400 jobs, including 400 positions at 24-hour news network CNN. In recent months, the company offered buyouts to hundreds of employees at its publishing unit, which has been hit hard by the decline in advertising spending.

In July, the company also cut about 30 of the 800 employees in its interactive marketing group.

AGGRESSIVE TARGETS

Chief Executive Gerald Levin has said that he does not expect any significant layoffs such as other companies have experienced, but he kept the possibility open for voluntary early retirement programs. He has also said he plans to make cost management a permanent way of live at the company.

``AOL has been using cost controls as their principle means of hitting their (targeted earnings and revenue) numbers. Clearly, revenue growth is not there for them -- as is the case for their peers,'' said ABN AMRO analyst Arthur Newman. ``It may not be the preferred way of making the numbers, but it will get them there.''

Second-quarter results called into question the company's ability to meet its aggressive $11 billion EBITDA (earnings before interest, tax, depreciation and amortization) and $40 billion revenue targets for 2001.

The company's executives said the $40 billion revenue target would be the top-end of the expected range as AOL Time Warner also contends with the slowing economy and decline in ad spending.

``The cuts reconfirm that the business has slowed and in order to have any chance of making their $11 billion in EBITDA, more of the cash flow will have to come from cost controls given that revenue won't come through as the economy is not likely to rebound,'' said Fred Moran, analyst at Jefferies & Co.

He said that all of AOL Time Warner's units are vulnerable to further cuts, except perhaps the cable operations.

``Each of the other business units have shown some sensitivity to the economy, and they must each come through with cash flow projections given how focused management is on making full-year growth targets,'' Moran added. ``Cable operations have shown resilient growth. I would be a little surprised if cuts came there given the new services that are blossoming the way they are.''

-- Anonymous, August 13, 2001


Moderation questions? read the FAQ