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AOL Layoffs Highlight Time Warner's Quandary

News of more layoffs at AOL came as no surprise on Wall Street, where recent setbacks for the beleaguered Web concern have convinced many investors that its media-giant parent, Time Warner (TWX - Get Report), needs to get rid of the business.

Tricia Primrose, a spokeswoman for AOL, confirmed Monday that the company will be laying off roughly 2,000 employees -- a fifth of its total workforce.

AOL already slashed 5,000 jobs last year as it embarked on an effort to transform the business from a subscription-based model to an ad-supported model more like Google (GOOG - Get Report) and Yahoo! (YHOO - Get Report).

While the shift was a welcome move on Wall Street, doubts about whether it would succeed proliferated after Time Warner reported that AOL's ad sales growth slowed in the second quarter to 16% from the roughly 40% it had logged in the previous four quarters. The company also said it expects the slowdown to continue for the rest of the year.

"Laying off a couple thousand people after you missed the quarter and lowered the year's expectations is not generally a sign of strength, but I think we need to hear more details about what they're doing," says Pali Research analyst Richard Greenfield.

Primrose says the job cuts will be coming from "across the board."

"We've taken a look at the entire organization, and the real emphasis has been on can we stay competitive and operate effectively across the company," says Primrose. "As we complete our transformation to an ad-supported Web company, we have to make sure that our resources are aligned with our new business mode."

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