The

America Online

(AOL)

-

Netscape Communications

(NSCP)

get-together might begin with a goodbye.

In what could turn out to be the Internet economy's biggest instance of downsizing, sources close to Netscape say the pioneering company is close to laying off as much as 30% of its workforce. The layoffs could take place as soon as next week, say observers close to the company.

The cutback in Netscape's workforce is part of the move by AOL to integrate Netscape into its operations, creating one giant Internet media conglomerate. On Wednesday, Netscape shareholders voted to approve AOL's acquisition of the Mountain View, Calif.-based company. When the merger was announced last November, the deal was valued at $4.2 billion but it is now worth nearly $9 billion. In that period, AOL's share price has more than doubled and its stock split 2-for-1 last month. Netscape's stock has also surged on the deal, increasing 145% since it was announced.

Founded in April 1994 by James H. Clark and Marc Andreessen, Netscape is arguably the granddaddy of the Internet craze. The founders helped create the

NCSA Mosaic

software that was further developed into the

Netscape Navigator

Web browser. Netscape briefly threatened to dethrone

Microsoft

(MSFT) - Get Report

after staging a high-profile and successful IPO in August 1995, only 16 months after its founding.

Netscape has approximately 2,500 employees scattered throughout 17 countries, but the majority of them work at the Mountain View headquarters. About 700 employees could be shed from the company. However, one source close to the company says some employees may be rehired in new positions as the merged behemoth hatches new initiatives in e-commerce and extends its portal strategy.

A Netscape official deflected questions about the layoffs. "That's premature at this point," says Patty Pierson, a Netscape spokeswoman. "I'm not really in a position to comment on rumors."

AOL spokesman Jim Whitney would only say: "We'll have more information next week about how the two companies are going to operate going forward."

"Nobody knows exactly what's going to happen," says one observer close to the company. "Management is sending out a lot of mixed messages. That's the reason there's something to this."

Initially, one of AOL's biggest fears about the merger was that Netscape employees -- especially the company's highly valued engineers -- would run for the exits when the merger went through. To stave off such an exodus, AOL offered an extra month's salary to every Netscape employee who remained until the deal closed.

Observers familiar with the negotiations say Netscape engineers are the least likely to be affected by the layoffs. "The word down here is 'do not fire the engineers,'" says a source close to the company. "If you're an engineer and you're at Netscape, you're not going to go anywhere. AOL is starved for engineers."