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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 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.

"We can't expect users to use common sense. That would eliminate the need for all sorts of legislation, committees, oversight and lawyers." -- Christopher Jennings

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