CEO Scott Thompson says action is 'important next step'

Yahoo is laying off 2,000 employees as part of a major restructuring implemented by new CEO Scott Thompson.

Thompson told staffers the overhaul was necessary “to compete and win in our core business (and) allow us to move fast, and to get stuff done.”

The cuts, coming after months of management, board and shareholder turmoil, will result in $375 million a year in savings to reinvest in making Yahoo more competitive with rivals Google and Facebook. Severance costs will result in a hit to earnings of $125 million-$145 million, mostly booked in the current second quarter.

In an internal email, Thompson said “over the last 60 days, we’ve fundamentally re-thought every part of our business and we will continue to actively consider all options that allow Yahoo to put maximum effort where we can succeed. As part of this process, I believe we have to focus to win in a select group of core businesses globally.”

He mentioned three: Yahoo’s core media and communications division; its platforms, which need to be strengthened to support speed and scale; and its data, which could be better mined to attract advertisers. Yahoo, a global brand with a massive following in sports, finance and news, said 700 million people visit its sites each month. It’s also been actively rolling out original entertainment programming. But the company acknowledged it has fallen short in transforming its broad footprint into hard cash.

“Unfortunately, reaching that goal requires the tough decision to eliminate jobs, which means losing colleagues and parting with friends,” Thompson said.

The Sunnyvale, Calif.-based company will start notifying the approximately 2,000 people, or about 14% of its total workforce, of job eliminations or phased transitions on Wednesday. Layoffs will span the company but are said to focus most heavily on the product division with the media side expected to emerge relatively unscathed.

Execs are expected to give more details of the restructuring and Yahoo’s “future direction” when it reports first-quarter financial results on April 17.

Yahoo has had waves of layoffs, including 1,500 staffers in 2008, but hasn’t managed to stem declining revenue and profits in the face of stiff competition, particularly in online display advertising where it used to rule but now Google and Facebook dominate.

Last year, Yahoo’s display advertising revenue fell 2.4%, according to research firm eMarketer, while Facebook’s jumped by 52% and Google’s by 42%. Microsoft and AOL both saw display ad sales rise about 12%.

Yahoo’s total revenue fell to $4.98 billion in 2011 from $6.32 billion the year before. Net profit slipped to $1.06 billion from $1.24 billion.

Yahoo’s board hired Thompson away from e-commerce giant PayPal in January, charged with reviving the company’s fortunes. There’s a lot at stake with the total online ad market is expected to hit about $40 billion in 2012.

In February, Yahoo co-founder and director Jerry Yang resigned from the board, followed by the exit of chairman Roy Bostock and three other board members.

Former Yahoo CEO Carol Bartz was ousted last September, which was followed by rocky period when the company was the subject of constant takeover speculation by China’s Alibaba Group, Microsoft and others. Yahoo also explored selling its own stake in Alibaba. Shareholders grew impatient and one activist investor, hedge fund Three Point, put up dissident candidates for the company’s board.

Wall Street seemed to have a wait-and-see attitude on the revamp. After a small jump the stock was off slightly, by 0.66%, in midday trading at $15.08.

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