America Online, the country's leading Internet service, is preparing to lay off as many as 700 of its 13,000 employees in the US, according to an executive knowledgeable about its plans. AOL, a unit of Time Warner, is continuing to cope with a declining subscriber base and an advertising business that, while rebounding, trails industry leaders like Yahoo and Microsoft's MSN.
The layoffs will not be concentrated among any particular department, the executive said, and the exact jobs to be eliminated have not yet been determined.
Time Warner is scheduled to report its earnings for the third quarter on Wednesday and is expected to identify a reorganization charge related to severance and other costs from the planned layoffs, which were first reported by The Washington Post.
"AOL has been making its numbers this year by a lot of cost-cutting," said Tom Wolzein, an analyst with Sanford C. Bernstein & Co. He said that the online service had promised that it would increase its pretax cash flow contribution to Time Warner by at least 10 percent. The word of the impending layoffs, he said, implied that more cuts were needed to meet that commitment.
"The question remains: Are they just giving all the money to their parent or keeping enough to rebuild AOL for the future?" Wolzein said.
America Online has had a series of layoffs since the Internet downturn in 2001. But the company said that its worldwide work force of 20,000 and its total employment in the US had remained largely constant because it had added new positions to replace the eliminated jobs.
Separately, Gateway, the personal computer maker, said it had reached an agreement with America Online to repurchase Gateway stock owned by AOL for US$186 million in cash and a reduction in payments -- up to US$130 million -- that AOL owed Gateway for marketing services. The purchase includes both preferred shares and up to 2.7 million common shares.