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Floundering Yahoo Lays Off Four Percent of Workers

Floundering Yahoo Lays Off Four Percent of Workers
December 14, 2010 11:40AM

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Up to five percent of Yahoo's workers were expected to be laid off as the company continues to struggle. An analyst said CEO Carol Bartz was "the wrong choice" for Yahoo and hasn't been able to provide a vision. Yahoo might have done better to accept Microsoft's takeover in 2008. Now it's a question of whether others want to buy Yahoo.

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Leaks about a mass layoff at Yahoo made headlines across the U.S. Yahoo laid off 600 employees on Tuesday as the company continues to struggle.

Yahoo job cuts amount to four percent of its workforce. Yahoo employs about 14,000 workers in Sunnyvale, Calif. Perhaps ironically, CEO Carol Bartz insisted Yahoo was still "hiring every day" as recently as mid-November. Most of the cuts are expected to come from the product division.

"Carol Bartz is the most highly paid underperforming CEO in the market," said Rob Enderle, principal analyst at the Enderle Group. "These layoffs reflect the fact that Bartz was the wrong choice for the job and the company is really suffering for it. Yahoo is a company in search of a vision, and she hasn't been able to provide that vision and carry the company forward."

Yahoo's Wrong Turn

Of course, the problems didn't start with Bartz. Yahoo has been struggling for years. Enderle said Yahoo is still trying to recover from shunning Microsoft's acquisition offer in 2008. The software giant offered $44.6 billion to acquire Yahoo, a 62 percent premium over Yahoo's stock at the time. But Yahoo snubbed Microsoft repeatedly, even fighting off a hostile takeover.

The question is: Could Microsoft have done any better? Enderle thinks so. That's because Microsoft has internal leadership that knows how to run a property like Yahoo. Microsoft has a strong track record with MSN, which remains the leading Internet portal.

"Of the companies out there that could have done something with Yahoo, Microsoft is one of the few that actually had the resources to do it," Enderle said. "And Microsoft is clearly not under financial stress itself, so they would be willing to spend whatever it took to recover the property. It wouldn't have been perfect, but it would have gone better than this did."

What Is Yahoo's Fate?

Next question: Will Yahoo go back on the acquisition block? Enderle says four companies -- AOL, Microsoft, Facebook and Google -- have the skill sets to run a property like Yahoo. It remains to be seen if there is interest.

In October, rumors swirled that AOL and several equity firms might buy the Internet giant. Silver Lake Partners and Blackstone Group LP are among the firms that reportedly explored teaming with AOL to buy Yahoo, or even taking it private.

"Yahoo is clearly struggling. At some point the investors give up and the employees leave and don't come back," Enderle said. "This number of layoffs destroys employee morale and makes it very hard to retain good people, let alone acquire them. The end result is the company is put on perpetual death watch and never comes out of the spiral."

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