PhotoWorks cropping half its work force

Seattle-based PhotoWorks is laying off 66 people — half of its workers — and shuttering the Seattle film-processing center that was formerly the heart of its business.

The cuts are part of a broad reorganization the company is making to survive after three years of losses. It's reshaping itself as an online provider of digital photo services, including prints of digital images, but its print orders will now be outsourced to a company in Maryland.

Mail-order film processing was the company's original mission when it started in 1979 as Seattle FilmWorks. It later tried to operate retail outlets.

With consumers shifting to digital photography, the market for film processing is falling about 30 percent a year, said Philippe Sanchez, president and chief executive.

Laying off employees is a decision that is "obviously hard for me and the management team to make, but it's also a decision we can't avoid," he said. "The reality is the market has changed and consumer demand has changed significantly."

The company expects to take a $200,000 charge in the second quarter of its fiscal 2005 year related to the layoffs. On an annualized basis, it expects to save $1.6 million from reduced overhead.

Yesterday's announcement boosted its stock, listed on the OTC Bulletin Board, to 24 cents, up 3 cents, or 14 percent. The day before it closed at a 52-week low of 21 cents.

Sanchez said the new approach already is showing results with a 40 percent sales increase during the holiday season, when PhotoWorks debuted its new Web site.

"The next logical step was now we need to align the operation and really focus on where the future is, which is digital printing and digital product and away from the traditional film development business," he said.

PhotoWorks has downsized from 750 employees in 2000. The layoffs taking place over the next two months will cut the work force from 130 to 64.

There were warnings last year that changes were coming. Facing liabilities that exceeded its assets, the company arranged new financing in December that provided $4 million in cash and converted some debt to stock.

Sanchez said the restructuring may position the company to be acquired in the future, but that's not the goal of management.

"Now this is almost like the final piece of the puzzle where the company is clearly a digital play and well-positioned for us to grow," he said.

Brier Dudley: 206-515-5687 or