January 30, 2001 5:05 PM PST

Amazon cutting 15 percent of staff; beats estimates

Amazon.com posted a fourth-quarter loss Tuesday that slightly exceeded expectations and said it will lay off 15 percent of its staff, or 1,300 employees, as it strives to become profitable by the end of the year.

see related story: Stock options for laid-off employees? The Seattle-based company posted a pro forma net loss of $90.4 million, or 25 cents per share, excluding investment and other non-operating losses. A year ago, Amazon posted a pro forma loss of $184.9 million, or 55 cents per share.

Analysts expected Amazon to lose 26 cents per share, according to a survey by First Call.

Amazon stock closed the regular trading session on the Nasdaq down $1.19, or nearly 6 percent, to $18.94. In after-hours trading on the Island ECN electronic communications network, Amazon's stock was down another 57 cents to $18.37.

Net loss for the period was $545 million, or $1.53 per share, on revenue of $972 million. That compares with a loss $323 million, or 96 cents per share, on revenue of $676 million in the same period in 1999.

In addition, the company said it expects to be profitable on a pro forma basis by the fourth quarter of 2001.

"While the strength of consumer spending remains uncertain, and there are no guarantees, we expect Amazon.com as a whole to reach operating profitability in the fourth quarter of this year," Amazon Chief Financial Officer Warren Jenson said in a statement.

The announcement marked the first time the company had put a target date on reaching profitability. The job cuts and consolidation of the distribution and customer services centers were part of a drive to reach that target date for profitability, Jenson said.

"We've been asked thousands of times in the last five years when Amazon.com will be profitable," Amazon Chief Executive Jeff Bezos said in a conference call with investors. "We resisted the temptation to answer that question because we thought it would be irresponsible.

"We know these types of goals are never guaranteed, but the progress we've seen in the last year gives us the confidence to share them today."

The company is laying off staff from its approximately 8,500-person work force. The cuts are primarily coming from Amazon's McDonough, Ga., distribution center and Seattle customer service center, both of which the company will close. Workers in the Seattle service center had been attempting to organize a labor union, but Jenson said the closure of the center was unrelated to the union activity.

"We totally respect the rights of every employee in this company," Jenson said in a conference call with reporters, adding that the Seattle customer service center was the company's "highest cost" center.

Union response
Alan Barclay, an Amazon customer service representative and a leader in the movement to unionize the Seattle service center, questioned the closure of the center. He called the closure one in a string of short-sighted moves by the company in recent years.

"Seattle customer service has been the backbone of company performance for its whole existence, and other customer service sites have yet to meet the quality and capacity of this office," Barclay said in an e-mail to CNET News.com. "I now fear that Amazon is in for rocky times ahead, as customers feel the impact of lost service expertise."

The Washington Alliance of Technology Workers (WashTech), which led the organizing effort at Amazon's customer service department, plans to investigate the layoffs and their connection with the union effort, WashTech co-founder Marcus Courtney said. That investigation could lead to charges being filed with the National Labor Relations Board, Courtney said.

"We obviously believe that some serious red flags were raised that this was the only customer service center affected by layoffs," Courtney said.

The Northern California Media Workers Guild raised similar questions last fall after Etown.com laid off workers amid a guild-backed organizing effort at the San Francisco-based company.

But on Monday, the guild withdrew a formal charge of unfair labor practices against Etown after an NLRB investigation determined that the layoffs and the union effort at Etown were unrelated, guild representatives said.

Amazon said it is offering jobs at its other distribution and customer service centers to hourly workers affected by the job cuts. The company said it will pay for relocation costs, but employees who accepted the offer might have to take a pay cut, spokesman Bill Curry acknowledged.

"They would be paid the prevailing wage for that position at that location," he said, noting that the cost of living is lower at the company's sites outside of Seattle. The company operates customer service centers in West Virginia and North Dakota, and has distribution centers in Nevada, Kentucky, Kansas and Delaware.

Amazon did not make a similar offer to salaried employees affected by the job cuts, Curry said.

Amazon also said it is setting aside $2.5 million worth of stock in a trust fund for laid-off workers. The fund will hold the stock until mid-2003, when it will sell the stock and distribute the funds raised to the laid-off workers. The company did not say how it will portion out the proceeds.

Amazon said it will begin to operate its Seattle distribution center on a seasonal, rather than year-round, basis. The company said it will take a $150 million charge in the first half of 2001 related to the layoffs and closures.

As expected, Amazon lowered analysts' expectations of its revenue for the coming year. The company projected that its revenue will grow 20 percent to 30 percent year over year in 2001, from $2.76 billion in 2000 to $3.3 billion to $3.6 billion.

That marks a significant change from the company's expectations at the end of the previous quarter. In a conference call last year announcing the company's third-quarter results, Jenson had projected that Amazon would pull in $4 billion in revenue in 2001.

Jenson said the company revised expectations after seeing its fourth-quarter results and its early sales from the first quarter.

"There's been quite a dramatic shift in the overall economic environment," Jenson said.

 

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