AOL Time Warner Inc. announced plans yesterday to lay off about 1,700 workers, its second major cutback as the media giant wrestles with a sagging advertising market and a weakened economy just seven months after completing its merger.
The layoffs -- which sources said are expected to begin this week -- target workers at the company's Internet division, America Online Inc. The cuts represent more than 10 percent of the far-flung division's 16,000 employees. Sources said that less than a quarter of the cuts -- or fewer than 425 employees -- will come from the unit's Northern Virginia headquarters in Dulles, where AOL has about 4,800 workers.
The company declined to provide further details about the cuts in the Washington region, and employees, bracing for the worst, said they still had not receive any information from management by yesterday afternoon about where the ax will fall. "Everyone's just walking on eggshells," said a worker in Dulles. "The only thing we've been told is, they don't know what's going on. It's like this big secret, and I want to know what's going on."
The layoffs come at a particularly bad time because AOL departees will be entering a tech job market substantially weaker than the boom times of 2000, local recruiters said. The unemployment rate in the Washington area remained a low 2.8 percent in June, though labor analysts noted that the figure has creeped upward, particularly in Virginia.
But Barry Schuler, chairman and chief executive of the online division, played down the layoffs, saying "we've done this every single year" since his arrival at the company nearly seven years ago. "This is a very young, developing business, and every year we face a new set of challenges," he said.
Schuler also said that the cutbacks were being driven by the company's needs for the future, not by the economic problems of the present. "Yes, the market conditions overall are a part of this year's challenge, but it's not the motivator for doing this," he said. "We fundamentally believe the first chapter of the Internet is over."
Schuler said he did not expect additional layoffs this year, but he did not rule out the possibility next year. "I can't say there won't be [more layoffs], but I don't really anticipate [more cuts] this year, and depending on market conditions, we do think it's an organization that will work for us for the next period of time."
The cutbacks will affect about 2 percent of AOL Time Warner's 90,000 employees worldwide. New York-based AOL Time Warner said it will lay off about 1,200 workers from America Online and an additional 500 from iPlanet, an alliance between Netscape, an AOL unit, and Sun Microsystems Inc. to develop business software. The joint venture, which has about 3,000 employees, is based in Santa Clara, Calif., but its employees are dispersed around the country. After the cutback, AOL will have about 250 to 300 employees at iPlanet, which was formed when AOL acquired Netscape in 1999 for $10 billion in stock.
Executives said the layoffs will cut across the board at its online division, including managers and employees at various levels and slicing into such areas as its Web properties and technology development. Schuler said that an additional 1,000 to 1,500 employees will be shifting to different parts of the online division.
The company said that employees will be offered a separation package including at least four months of salary, health-care benefits and, for most employees, an acceleration of the vesting of their stock options in the company.
As a result of the layoffs, AOL said it will take a charge of $100 million to $125 million in its third quarter.
The company announced the layoffs as part of a broader reorganization of its online division. The biggest winner was Jim Bankoff, president of Netscape, a software unit based in Mountain View, Calif. Bankoff, who is 32 years old, was tapped to head AOL Web Properties, a new group in charge of such brands as Netscape, CompuServe, Moviefone, MaqQuest and AOL Instant Messenger. He also will be responsible for coordinating the integration of the online properties company-wide.
But yesterday, there was little to cheer about: The layoffs represent the online division's biggest single purge since April 1999, when it dismissed 850 workers after purchasing Netscape. This round also is the latest in a string of cutbacks since AOL and Time Warner completed their merger in January, creating the world's largest media company.
Until about a month ago, company executives had boasted that AOL's diversified sources of revenue -- including its cable, Internet, movie and music holdings -- would protect the newly merged company against the effects of a slowing economy. But then the company announced a weak second quarter in July, reporting slowing growth in some of its key media divisions. Company executives have been under pressure to produce because they have stuck to their oft-stated financial targets for the year, including a revenue increase of 12 percent to 15 percent, to more than $40 billion.
To meet those ambitious targets, AOL has been cutting across the company. The first sign that AOL was beginning to feel the advertising slowdown emerged in July, when sources said the company had laid off about 30 people from its online marketing division.
Shortly after AOL acquired Time Warner, the merged company announced the layoffs of 2,400 employees. About 725 employees were in its online unit, including 300 from its Dulles flagship campus. Many of those employees came from the firm's marketing and finance divisions.
Now, with the worsening economy, AOL employees said they feel they have more to worry about. "They're nervous . . . they're very, very uneasy," said Laura McCarthy, owner of Qualified Search Inc. in Herndon, who has fielded calls from AOL workers in the past few days. "A year ago if you were laid off, you could turn around and get another job in a second. Now a couple of weeks is lucky."
The uncertainties in the market have been compounded by the questions left unanswered about the layoffs at the company, said an AOL employee in New York. "My sense is that everyone at all levels is unsure of what's going on," he said. ". . . Now, even high-level officials are questioning their job security."
Staff writer Carrie Johnson contributed to this report.