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Apple lays off thousands

The troubled company terminates 2,700 full-time jobs and 1.400 other positions as it struggles to regain profitability.

Looking to drastically shrink its operations to match costs with declining revenues, Apple Computer (AAPL) said

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today that it will cut 2,700 permanent employees and 1,400 part-time and temporary workers, layoffs that will cost the company $155 million in its second quarter.

The company also said it will reduce funding for its OpenDoc component technology, Cyberdog, and speech technology, although several projects that observers thought were headed for the chopping block--most notably the Newton division--escaped the ax.

Amelio said the restructuring announcement represents the bulk of the employment cuts, but that the company is still evaluating further product cuts and spin-offs.

The layoffs of represent almost 25 percent of Apple's permanent workforce, which includes nearly 11,000 employees. But the 1,400 part-time workers make up more than half of Apple's 2,500 part-time and temporary workforce.

Fred Anderson, Apple's chief financial officer, said 55 percent of the layoffs will occur in the United States and the remainder overseas. He added that 80 percent of the positions will be cut in manufacturing, marketing, and research and development. The remainder of the reductions will come from sales, service, and administration personnel.

The layoffs are the second set of cuts in the 13 months since Gilbert Amelio became chief executive of the troubled company. Amelio announced layoffs of 2,800 last April.

"With this restructuring and the painful decisions that have come with it, we are addressing the problem of resource fragmentation and the resulting weakness," Amelio said. "We can best achieve [our] goals by streamlining our organization, simplifying our product lines to deliver fewer but much stronger models, and stopping investments in activities that are not central to these core businesses."

Apple's restructuring plans also call for funding reductions in certain product lines, including OpenDoc component software technology, Cyberdog, Open Transport, Game Sprockets, and Mac OS Development Tools. The company will also eliminate the Performa brand name, replacing the line with entry-level Macintosh designs instead.

"Going into the announcement, I was hoping for more substantive changes," said Bret Rekas, an analyst with Donaldson, Lufkin and Jenrette. "In looking at the annoucement, I don't see where the cuts are and am asking where are the big chunks they're taking out?"

With the layoffs and product cuts less substantial than expected, it remains unclear whether the layoffs will save enough to return Apple to financial health. The company wants to cut $400 million from its operating expenses to post a profit in the fiscal fourth quarter that ends in September. The company expects to bring in less than $8.8 billion in revenues this year, $1 billion less than last year.

The $155 million restructuring charge will be added to a $325 million charge for the acquisition of Next Software in the company's second quarter, which will close March 28.

It has been widely assumed that massive layoffs were on the way ever since Apple reported an unprecedented $740 million quarterly loss in February of last year. But in fact, today's cuts were less extensive than expected. Several published reports had speculated that the layoffs might eliminate as much as 40 percent of the Apple workforce.

In fact, Apple has not issued pink slips to individual employees yet and may not end up issuing many of them at all. A good portion of its workforce may simply quit first now that the handwriting is on the wall. That was the case after last year's restructuring announcement of 2,800 layoffs when only 1,500 employees ended up getting layed off; the rest were eliminated through attrition.

Amelio declined to specify when pink slips will be issued, but sources have said they are expected to begin as early as next week.

Amelio said employees will continue to receive their salary and benefits for 60 days after receiving their termination notice. Then they'll get severance packages, the amount of which will depend on the length of an employee's tenure with Apple.

"There are a number of great people whose jobs will be given up," Amelio said. "It's painful....but the only encouraging side is that these people will be in demand because they are very good and had worked for a company unparrelled in innovation. And if someday things get better, maybe we'll see them again."

More than a third of the 2,700 employees marked for layoffs today have already shifted over to SCI Systems and MCI Systemhouse, which purchased some of Apple's manufacturing plants. This is good for Apple because it reduces the amount of funds the company had to use for severance payments.

One region that won't be hit with downsizing is Japan, which Apple executives say is an important market that has responded well to Macintosh products.

Despite its success in Japan, Apple has seen its market share fall precipitously in the last year. In the fourth quarter, according to Apple's annual report, its share of the worldwide market fell to 5.4 percent from 8.7 percent a year ago and its U.S. share fell to 7.3 percent from 13.2 percent.

Within the Macintosh market itself, clone makers are giving the Macintosh maker a run for its money. Apple, which began licensing its operating system a couple of years ago, has seen its clone makers grab 8.5 percent of its U.S. market during the third quarter last year, according to market research firm Dataquest.

With more losses on the way and a growing lack of confidence that Apple can fix its problems, analysts and press asked Amelio today if he would resign.

"Why would I want to stand aside when we're at the cusp of turning this around," Amelio said during a conference call to analysts and the media. "I think this company needs focus and stability and we're going forward."