The layoffs at the world's largest Internet and media company comes as firms hunker down and cut costs to contend with the slowing economy.

AOL, which employs about 16,000 people, also said it will eliminate another 500 of 3,000 jobs as part of an alliance between Netscape and Sun Microsystems Inc.

The cost-cutting effort -- the third major round of layoffs at the company after the completion of its $106.2 billion merger in January -- was widely expected by analysts and confirmed what sources had told Reuters earlier.

Analysts, many of whom have cut their 2001 targets for the Internet and media giant, have said such a move was necessary to meet aggressive financial targets for 2001. Concerns were sparked by the company's second-quarter results as revenues grew slower-than-expected.

``I think market conditions are part of what we examine every single year, but I wouldn't consider the current market environment any more challenging than five years ago when everyone said the Internet was going to kill AOL,'' said AOL chief executive Barry Schuler in an interview.

Schuler said the cuts were across the board at the Internet unit that has 30 million subscribers, but he added that the company has had a lot of growth through acquisitions.

The cuts were not an indication that the market has become more difficult than the company previously forecast nor a sign AOL may have trouble meeting targets, he added.

``I wouldn't make that the take away. We are in a business that changes every single year. You have to reexamine your priorities. Last quarter was a record quarter for us...business is ripping,'' Schuler said. ``Great businesses follow the discipline of scrutinizing the business every single year, making sure it's right-sized and organized to meet goals and challenges.''


The reorganization at the world's largest Internet services provider aims to more tightly integrate its online brands and Web sites as the company prepares for high-speed services.

As part of the move, AOL said it will create an Interactive Services Group led by AOL President Jonathan Sacks that will encompass the AOL service and the local Digital City business.

AOL has said it plans to better integrate a local component in the next version of its service, AOL 7.0, in the fall.

Within the AOL interactive services unit, the company has created a new vertical markets group that will be headed by Donn Davis to create new programming and cross-brand ad and commerce opportunities in 10 key areas including music, entertainment and personal finance.

The company has put a focus on such cross-branding deals and the group will work closely with the new global marketing solutions unit created last week.

It will also create a new AOL Web Properties Group, led by Jim Bankoff, formerly president of the pioneering Netscape software business. The group will encompass Netscape, value-oriented Web service CompuServe, Moviefone, Mapquest and popular instant messaging services ICQ and AOL.

``Across AOL Time Warner we have tremendous Web assets...but they are really distributed all over the place,'' Schuler said. ''We are consolidating those assets into one Web properties unit run by Jim Bankoff and will look to provide a common platform and user interface and do some interesting things in that space,'' Schuler said.

Netscape, which was known for its browser, has been increasingly turning its focus to becoming a hub for the AOL Time Warner media sites on the Web and targeting non-AOL Web users now that it has largely lost the browser battle to Microsoft Corp. and its Internet Explorer.

But Schuler said the move does not indicate less of a commitment to the browser business.

AOL also expanded its broadband group, which will be led by Audrey Weil. It will focus on driving consumer adoption of new AOL services as the company rolls out more high-speed services via cable, satellite and digital subscriber lines.

These units, including the wireless unit headed by Lisa Hook, will share an unified technology and systems development organization and other functions, such as business affairs, marketing, communications, selling and business support -- offering another opportunity to cut costs.


In a quarterly filing to regulators last week, the company indicated that it expected to broaden its restructuring efforts in the second half of the year.

``I think it's a smart move. If you look at the headcount reduction and realize the macro environment is not cooperating with this company right now -- 25 percent of their revenues comes from advertising and the ad outlook stinks -- (they) should) try to control costs as aggressively as possible,'' said John Corcoran, analyst at CIBC, of the AOL cuts.

In the round of cuts made in January, a total of 2,400 people were laid off -- with many of Time Warner's media assets including the publishing unit and 24-hour news network CNN taking much of the pain. About 5 percent of AOL's staff -- or 725 people were affected by that round.

The company said in July that its decision to close its Warner Bros. Studio Stores by October will affect 3,800 jobs.

AOL Time Warner stock closed down 31 cents, or less than 1 percent, at $39.90 on the New York Stock Exchange. However, shares are down about 13 percent since the beginning of the month as worries about the company's ability to meet its targets in this climate took its toll on the shares.