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Commerce One Cuts Itself Nearly in Half

The SAP rumors crank up again as the software company spins off or drops 1,300 people.

Illustrating that technology companies are still dealing with the acquisition frenzy of the Internet bubble, business-to-business software firm

Commerce One


said Monday it will cut its remaining staff by nearly half.

The firm, which had 2,800 employees on Sept. 30, announced it will eliminate 1,300 people from its payroll, or 46% of its workforce. Only 700 of those cuts will result directly from lost jobs, however. The remaining 600 positions could be absorbed by the "planned spinoff of a number of services operations that are not directly related to Commerce One products," the firm said in a statement. That doesn't necessarily mean that those jobs will survive, however, only that they will be eliminated from Commerce One's payroll. The reductions follow smaller cuts earlier this year.

In September 2000, Commerce One acquired consulting firm AppNet, taking on its 1,000 service employees to the chagrin of investors who feared for the software company's margins. The software business, which is based on reselling intellectual property over and over again, typically has high profit margins, while consulting and services businesses are people-intensive, and usually less profitable.

A Commerce One spokesman said the spinoffs could involve management buyouts or "divestitures" by the firm.

"These are small professional service operations that we picked up as a result of the AppNet acquisition, entities working on business that's not necessarily related to Commerce One's core product," said spokesman Andrew McCarthy. "They're essentially small, independent consulting firms who are returning to what they were before AppNet came along and bought them."

McCarthy said the spinoffs weren't a sign of capitulation on the company's part to disgruntled investors.

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"I think it's really a reflection in a change in the market conditions," McCarthy said. The firm will give more details on the cuts during its earnings call, scheduled for Wednesday.

Over the weekend, a German magazine reported that Commerce One would cut up to 40% of its staff so that its partner, German software giant


(SAP) - Get SAP SE Sponsored ADR Report

, which holds a 20% stake in the firm, could purchase the company outright. Both Commerce One and SAP declined to comment on the report, saying that it was based on rumors. That's a well-worn line by both companies, around which buyout speculation has swirled since they became close partners in June 2000. Commerce One declined to say whether any of its "spinoffs" would end up in SAP's hands.

Monday, shares of Commerce One rose 21 cents, or 6.4%, to $3.50 on more buyout speculation.

U.S. Bancorp Piper Jaffray analyst Jon Ekoniak, who published a research note last week predicting layoffs at the company, as well as a reduction in operating expenses of 30% to 35% over the next two quarters, said cuts were necessary.

"Revenues are down so low, this company has to get realistic. We just figure they're going to have to make some serious cuts and take it from there," says Ekoniak, who has a neutral rating on the company. His firm has done underwriting for Commerce One.

Last week, Commerce One warned that its third-quarter loss would be larger than expected. The Pleasanton, Calif., company said it would lose approximately 24 cents to 25 cents a share; analysts had been expecting a loss of 23 cents a share.

"We are maintaining our focus on delivering the products and services our customers need to be successful," said CEO Mark Hoffman, in a statement. "By aggressively investing in our collaborative commerce product line, we feel that we are well-positioned to compete in the current economic climate and, more importantly, during a recovery."