Yahoo to Lay Off 10 Percent

Yahoo plans to reduce its global headcount by at least 10 percent this quarter amid weak economic conditions and softness in demand for its core premium display advertising business.

The layoffs are the “first step in a longer term effort that will last into ’09 and beyond,” said Yahoo CEO Jerry Yang during a call with investors this afternoon.

Other “aggressive cost management efforts,” he added, may include implementing additional structural changes, relocating offices to lower cost areas, and consolidating office locations.

Laid off employees can expect separation packages and job placement services from Yahoo, said Yang. The company is also in the process of focusing more of its workforce in lower cost markets like Eastern Europe and India.

The goal of the layoffs and other cost-saving initiatives is to reduce Yahoo’s annual costs from $3.9 billion to less than $3.5 billion by year’s end, the company said. The announcement was made as Yahoo reported weak Q3 net income of $54.3 million, compared to $151.3 million for the same period last year. Revenues were up just 1 percent to $1.8 billion.

Yang said he believes the online ad market will emerge from the economic downturn stronger than before, and suggested Yahoo will be positioned to gain market share at that time.

“We enter this slowing market with competitive advantages as the destination of choice for consumers and a leader in providing online advertisers with the broadest set of advertising management tools and products in the industry,” he said in a statement.

Weaker performance in premium display advertising during the third quarter could not counteract any positive growth in search volume and site traffic. Increased search volume and traffic were results of users visiting Yahoo for information on the financial crisis, the presidential election, and the Beijing Olympics, said Yahoo President Sue Decker.

Guaranteed display ad volume and pricing was down in the U.S. as non-guaranteed ad volume and pricing rose, said Decker, noting, “The majority of our business is premium.” Overall, spending was slower for most ad verticals, although finance, travel, retail, and auto were the hardest hit in Q3.

The company also alluded briefly to its search ad agreement with Google, currently under investigation by the U.S. Department of Justice. “We continue to work with the DOJ and others regarding the agreement,” said Yang during the call. “We look forward to bringing the benefits of this pro-competitive agreement to the marketplace.”

Yahoo did not share the actual number of likely layoffs. The company had 14,300 staff at the end of 2007, but laid off several hundred in February 2008. Assuming approximately 14,000 global employees, a 10 percent staff cut would affect approximately 1,400 people.

Kate Kaye contributed to this report.

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