It’s Official: More Job Cuts at AOL

AOL Time Warner made official Tuesday night what has been speculated on and expected for weeks: the world’s largest media company is laying off approximately 1,700 employees as it struggles to meet what Wall Street analysts have repeatedly predicted are unrealistic financial targets. The company also announced a restructuring that focuses on cross-platform marketing, AOL Anywhere and broadband initiatives.

The primary target of the cuts is America Online, Inc., the company’s Internet division headquartered in Northern Virginia, although sources say only 400 or so of the layoffs will come in Dulles, Va., where 4,800 are employed. Another 500 cuts are expected at the Sun-Netscape alliance in Santa Clara, Calif. The cuts are expected to begin in the next few days and analysts predicted the moves would save the company approximately $85 million.

The cuts represent more than 10 percent of AOL Time Warner’s worldwide Internet division workforce of 16,000. Overall, the company has approximately 90,000 employees. The company will take a charge of $100 million to $125 million in the third quarter to cover the cost of the shakeup. Earlier this year, the company cut 15,000 jobs, including 750 in Dulles.

The Tuesday night announcement comes just seven months after the final approval of the merger between AOL and Time Warner and after repeated statements by company officials that AOL Time Warner will generate revenues of $40 billion this year. The company has also insisted it will generate $11 billion in EBITDA (earnings before interest, taxes, depreciation and amortization) profits.

The industry-wide advertising slump, however, has caused many on Wall Street to doubt that AOL Time Warner could meet that goal and that the company would have to turn to job cuts to make its EBITDA target.

Wall Street reaction to the job slashing was muted, at best. After opening at $39.80 a share, the stock slipped slightly to $39.53 in late morning trading. More importantly, most analysts still feel AOL Time Warner will not meet its financial objectives.

“We continue to estimate $10.7 billion in EBITDA for 2001,” a Goldman, Sachs & Co. investment advisory stated. “We believe headcount reductions will be related to streamlining the software development organization, rationalization of acquired businesses, and continued focus on culling ‘poorer performing’ employees.”

The major initiatives in the restructuring include creating a new AOL Interactive Services Group, with Jonathan Sacks as president, which will include the flagship AOL service as well as local Digital City businesses; consolidating the company’s Web brands into a new AOL Web Properties Group comprising the Netscape, CompuServe, Moviefone, MapQuest, ICQ and AOL Instant Messenger services, as well as coordinating the integration of online properties from across AOL Time Warner; and enhancing the focus on partner service through the Interactive Marketing Group.

The company also plans to establishing a new Vertical Markets Group as part of AOL Interactive Services that will create new programming and cross-brand advertising and commerce opportunities in 10 key areas such as music, entertainment, personal finance, autos, travel, and others.

These units will be supported by a newly unified technology and systems development organization and other shared functions, such as business affairs, marketing, communications, selling and business support.

An AOL Time Warner press release stated, “This new structure will accelerate the company’s momentum by creating more valuable opportunities for commerce partners, and speeding the delivery of next-generation AOL products and features and of unified Web-based services that will provide greater convenience to consumers.”

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