Update: Amazon announces layoffs, restructuring

Computer World –

Amazon.com Inc. today joined the parade of online retailers that are making cutbacks aimed at reducing their losses, disclosing plans to lay off 15% of its employees and consolidate its distribution and customer service facilities.

The restructuring plans, which were announced as part of Amazon's fourth-quarter financial results, will include a reduction of about 1,300 jobs at the Seattle-based company. In addition, Amazon said it's closing a distribution center in Georgia and a customer service center in Seattle and converting a distribution facility in the latter location into a seasonal operation.

Amazon CEO Jeff Bezos said during a conference call this afternoon that company executives "remain as bullish as ever" and now expect to reach operating profitability on a pro-forma basis during this year's fourth quarter. But he added that the softening economy made cutbacks necessary in order to reach the profitability goal.

"I'm sure no company enjoys making this kind of decision," Bezos said. "It's always difficult and painful. But it was clearly the right decision for us as we pursue making this into a profitable company." Noting that both consumer and corporate spending weakened late last year, he said: "Like our competitors, we are clearly not immune to this softening."

Warren Jenson, Amazon's chief financial officer, added that the company's management team is "set on meeting our objective" of becoming profitable from an operations standpoint by this year's fourth quarter. But in order to make that possible, Jenson said, Bezos and other executives "felt it was absolutely critical to have a cost structure that would let us drive to profitability."

Jenson said Amazon is reducing its revenue forecast for this year by about $500 million, with net sales now expected to increase 20% to 30% over the $2.8 billion level that the company reached during 2000. He described the lowered outlook as "an appropriately conservative estimate as to where we see revenue" in light of the softer economy.

The cutbacks announced today are expected to result in restructuring charges of more than $150 million during the first half of this year, according to Amazon. Jenson said that figure includes the cost of severance payments, writedowns of fixed assets and continuing payments that the company will have to make on leases for the facilities being closed.

Jeffrey Fieler, an analyst at Bear Stearns & Co. in New York, said Amazon's cutbacks and operating profit projection were intended to let investors know that the company is serious about getting out of the red. Especially with revenue growth falling below earlier projections, Amazon executives needed to send a signal that they're "able to get their costs in line," Fieller said.

Like other online businesses trying to stem an ongoing tide of losses, Amazon "is really feeling the pressure," said Barrett Ladd, an analyst at Gomez Advisors Inc. in Waltham, Mass. "People want to know that they will make money."

The restructuring announcement comes three weeks after Amazon said revenue for the fourth quarter of last year would come in at about $960 million -- a figure that was at the low end of the company's original expectations, according to analysts. The actual revenue total reported today was $972.4 million.

Amazon said it lost $60 million on a pro forma operating basis during the fourth quarter, although its net loss for the period totalled $545.1 million. For last year as a whole, the company had a $317 million pro forma operating loss and a net deficit of $1.4 billion.

One twist to Amazon's cutbacks is that the company said it plans to establish a trust fund with about $2.5 million worth of its common stock that's due to be distributed to the laid-off employees in two years. Both Fieler and Ladd said that's the first move of its kind they've seen.

But Fieler added that the trust fund may be aimed more at reassuring Amazon's remaining workers than it is at compensating the ones affected by the layoffs. "It's not so much for the employees who are being laid off as it is a way for the company to show the employees left behind that [it] will take care of them," he said.

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