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More painful cuts come, as expected; Yahoo blames bad economy for its misfortune

DailyTech reported earlier this month that Yahoo was contemplating job cuts.  Faced with sagging growth and market share loss to Google, coupled with the possible loss of the Google ad partnership due to regulatory headaches, Yahoo had few other options than to make cuts.

Yahoo co-founder and CEO Jerry Yang, under pressure by some investors of late to resign, gave a statement describing the cuts, stating, "We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity.  The steps we are taking this quarter should deliver both near-term benefits to operating cash flow, and substantially enhance the nimbleness and flexibility with which we compete over the long term."

At least 10 percent of Yahoo's workforce will be slashed, meaning that at least 1,520 will lose their jobs.  The company hopes that the cuts will help it to reduce costs, while not significantly reducing its profitability. 

The cuts were the second for Yahoo this year, with the company letting 1,000 employees go this last January.  In total, Yahoo has let go close to 16 percent of its workforce since the start of the year.

Yahoo will also be relocating offices and consolidating real estate to try to reduce costs.  Mr. Yang stated in a conference call, "We are identifying ways we can operate more efficiently."

Yahoo's revenue for the quarter was $1.79B USD, up 1 percent from the quarter a year before.  Without the commissions it paid ad partners, the company pulled in $1.33B USD, slightly lower than the average analyst prediction of $1.37B USD.  Net income for Yahoo was $54M USD, down 51 percent from last year.  Profits excluding one-time charges were $123M USD, roughly in line with analyst expectations.

While the report contained some disappointing spots, it mostly was in line with analyst predictions, so some analysts hailed it as good news for the troubled search firm.  Sandeep Aggarwal, Senior Internet Analyst at Collins Stewart described the report as having "no more negative surprise beyond what we had already expected."  And Jeffrey Lindsay, senior analyst with Sanford C. Bernstein & Co said that the report "could have been a lot worse."

Mr. Lindsay praised the job cuts, stating, "If they really do take the staff numbers down for real, that will have a very beneficial effect."

Yahoo's management is blaming a weak economy for their company's struggles.  Yahoo Finance Chief Blake Jorgensen described in a statement, "An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range.  While we are disappointed with our results, we're pleased that we continue to benefit from the aggressive cost management efforts we have pursued during the year."

Yahoo stock recently perked up after falling to the $11/share range, after Microsoft CEO Steve Ballmer commented that Microsoft might still be interested in Yahoo or parts of Yahoo.  Microsoft had offered Yahoo $32/share, almost three times the current stock price, but Yahoo had rejected the offer, stating it was worth significantly more.

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RE: Only in America
By Gzus666 on 10/22/2008 11:52:27 AM , Rating: 2
I agree wholeheartedly. Good to see I'm not the only one who thinks this, it seems like this would make the most sense. But of course, business is the boys club and it's all about helping buddies, not running a business.

RE: Only in America
By Emryse on 10/22/2008 8:09:07 PM , Rating: 2
Um... you are absolutely wrong.

You just can't understand why people make millions of dollars. And you can't understand that, because you probably don't have what it takes to make millions of dollars.

Business is about creating value (which typically results in profit). If a business pays someone "X" million dollars, it's because they truly believe that someone will provide many, many, many times over in return on that investment.

(You may want to Wiki that concept "Return on Investment".)

Social clubs, the Masons, Rotary; those are all about helping buddies.

RE: Only in America
By sgw2n5 on 10/22/2008 8:51:38 PM , Rating: 2
Wow, you are stunningly ignorant of how businesses operate.

If you don't think that the good old boy network and cronyism are alive and well within our business structures, and that is exactly how most higher level jobs are filled... you are either a non-observant boob, or have never held a job.

RE: Only in America
By Emryse on 10/23/2008 6:50:50 PM , Rating: 2
No - actually, I'm very much aware and involved.

You can only "fake" doing a job for so long, before you are either marginalized as a leader, or replaced.

At the end of the day, your customer's still need to buy what you're selling. Now, if your business allows you to hire who you want, for whatever your reasons are, then you're still making acceptable positions.

Your industrial age perspective of the workforce was departed circa 1999. We are past the Information Age and into the Knowledge Management Era. People are increasingly being measured by metrics that show what value they are actually contributing to the process, and those metrics are increasingly concerned with what actual, applicable, relevant *knowledge* is being utiltized to contribute that value, and who possesses, manages, shares, discovers, and evolves that knowledge.

The tolerance for people holding cushy jobs, especially at the high level of executive leadership, is very very low - and with each such debacle such as the current Yahoo fiasco, that tolerance only decreases.

While it is true that high level jobs are filled by people who know each other, it is not because of some secret handshake or favor owed, but rather because they have by this time in their careers sustained a reputation to *get stuff done*, *influence people*, and *champion innovation* to maximize the value of any given organization which they have previously worked for.

Am I stating this is the way it works every single time? No. But is this generally the way it works? Of course.

Oh, and you remain to be the only boob in this conversation; and I think anyone with a brain can tell between the two of us who has or could "hold a job".

Get off the computer, and get back to your pizza deliveries.

RE: Only in America
By Regs on 10/23/2008 8:44:03 AM , Rating: 2
Business is about creating value (which typically results in profit). If a business pays someone "X" million dollars, it's because they truly believe that someone will provide many, many, many times over in return on that investment.

This is on case by case basis. From what I've seen it's more of the middle management that causes a problem in the corporate hierarchy. Like the old HP days with their sales force. Each sales rep had to go through two or three managers just to get what their customer wanted with some managers not even located anywhere near the district or zone. Making a customer wait wasn't could for business, so they did the right thing by cutting middle management and re-organizing the hierarchy.

If you want to talk about the soldiers and how badly we get screwed all the time in most cases, it's a different story. When you have to deal with a manager who had a rough life and earned everything he got by scraping and groveling, he is going to be more reluctant to reward his employees. Especially when his own bonus is tied into the departments budget, which is affected by our compensation.

RE: Only in America
By MrBlastman on 10/23/2008 9:52:05 AM , Rating: 2
Ever hear of the concept of diminishing returns?

It is pretty simple, really, to apply to management pay. On a given day, X dollars paid will yield Y dollars in results. However, if you reach a certain threshold, X dollars might yield 1/2 Y results, step up another notch and X will only yield 1/4 Y results and so on.

There comes a point where dollars paid out generates less and less in return. The same applies to management at the top. An exec making 4 Million a year may generate a little more if you pay him 10 Million, and perhaps even minutely more if you pay him 50 Million. At some point it begins to make very little sense to hyperinflate their pay. This is what has happened at the top all across America. I'm ok with paying a guy 2 - 4 Million at the top, but anything more, unless you founded the company on your own and it is yours, makes little sense to pay a manager.

At some point management needs to realize, hey, I just brought home 500 million last year. If I divided that up among my employees, that would have netted them all a 5000.00 bonus, perhaps earning greater loyalty, work ethic and dedication to the firm.

Use some sense. Feed the troops at all times, starve the generals when needbe so the linemen can do their work. The generals will survive if their pay has been cut to just 1 million a year with zero bonus. I pity the sacrifices they will have to make while the rest of the workers are making 30 - 100k.

RE: Only in America
By Emryse on 10/23/2008 7:18:01 PM , Rating: 2
I applaud you for at least writing like you've thought about what you want to say, so I can respect your opinion. However, I caution you to think a bit harder when it comes to how you're applying "concepts" such as the theory of diminishing returns.

The theory of diminishing returns does not apply as a "blanket law" to all situations - especially compensation.

Incentive is a personality-driven condition.

Some personalities gain no incentive with increases in pay. Others gain huge incentive by increasing their pay.

So your statement that as a generic rule "there comes a point where dollars paid out generates less and less in return" is simply not correct.

Holistically speaking, compensation varies for good reason.

You're also forgetting a huge economic factor. Joe "employee" making $50k a year can afford to spend a lot less in our economy that Bob "executive" making $50M a year. People have this funny, and often very, very wrong notion that wealthy people just hoard money.

Not at all true; by and large - they reinvest it into the economy, by buying products that often normal people can't afford to buy, doing a lot more spontanious shopping, reinvesting into their companies or ventures (which by the way ends up paying Joe "employees" salary), etc.

Your military analogy of "starving the generals so the linemen can do their work" also does not apply (at least correctly), because if the linemen are working on something that will yeild no value, then both they and the generals are screwed. And linemen typically cannot be in a position to determine whether or not ultimately the work they are doing is the right or wrong work. They can more or less only determine that they are doing the work "the right way" - a typical key difference between the wisdom of a seasoned executive who "knows what the right things to do are" vs. the subject matter expertise of a lineman who "knows the right way to do things".

Whereas, if the generals are well fed because they are the *right* generals, then they will direct the linemen to work on the right stuff that will create tremendous value, and that in exchange will typically not only feed the linemen, but create more jobs for more linemen. And diverging from your analogy, ultimately create profit for shareholders.

However, even that analogy is changing, because the Knowledge Era is transforming the definition of value and how it is created, and by whom. Many of the concepts found both in our military and in traditional industry still have root in the Industrial age, and therefore no longer apply, or at the very least are losing relevance.

RE: Only in America
By Ringold on 10/22/2008 8:14:47 PM , Rating: 2
But of course, business is the boys club and it's all about helping buddies, not running a business.

Last I checked, most jobs in America are actually filled through "boys club" social job networking. If you don't network for jobs just like they do, you're probably not job hunting correctly.. Personal contacts is the first place I go; open job listings is the last.

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