(Corrects analyst's comment in fourth paragraph of story published Aug. 28.)

Aug. 28 (Bloomberg) -- EarthLink Inc. plans to cut 900 employees, almost half its workers, after subscribers fled the unprofitable U.S. Internet service provider. The company's shares rose the most in two years.

EarthLink said today it will close or scale back offices in five states this year, cutting the Atlanta-based company's workforce to about 1,000 employees. The firings will cost as much as $70 million in the next two quarters. EarthLink also trimmed its sales forecast for the year.

Chief Executive Officer Rolla Huff is shrinking the company after it shed 1 million subscribers in the past year. EarthLink has reported four straight quarterly losses as spending on new wireless services buoys costs. The growth of its high-speed wireless products hasn't offset subscriber losses for dial-up Internet service, its original business.

``Any time you take these kinds of steps, it's going to improve the profitability construct of the company,'' Standard & Poor's analyst Scott Kessler said in an interview from New York. He has a ``buy'' rating on the stock.

EarthLink also plans to buy back an additional $200 million in stock, equivalent to 29.2 million shares at yesterday's closing price, or nearly a quarter of shares outstanding as of July 31. The company now has $270 million set aside for share buybacks, according to the statement.

Shares Rise

EarthLink shares climbed 48 cents, or 7 percent, to $7.34 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest gain since August 2005. The stock had fallen 3.4 percent this year before today.

The company's subscribers fell 19 percent to 4.34 million last quarter from a year earlier. EarthLink said today it expects to have 3.9 subscribers by the end of the year.

EarthLink expects to reduce costs by as much as $35 million for the rest of the year. Huff, who took over in June, said last month that he would consider changes for the business after slowing Internet subscriptions contributed to a 6 percent decline in second-quarter sales.

EarthLink said today that sales for the year will be as much as $1.21 billion, missing the $1.23 billion average of estimates in a Bloomberg survey. EarthLink predicted 2007 revenue of as much as $1.24 billion last month. The net loss will be as much as $174 million, up from $140 million predicted earlier.

The company cut the low end of its sales forecast for the third quarter to $290 million, compared with $295 million before. The net loss for the quarter will now reach $80 million to $95 million, nearly twice the $40 million to $50 million that the company previously estimated.

New Chief

On the second day after he took office, Huff broadcast a message to the entire company saying that significant changes were coming. He spoke to the management team and the level below to find out what parts of the business could be trimmed and what should be preserved.

``It's never an easy thing to do what we did today,'' Huff said in an interview. ``It's brutally difficult, but we've been open and honest with our employees.''

The company will focus on finding and keeping long-term customers while avoiding bargain-hunting dial-up subscribers, who are more likely to cancel their subscription, he said.

Huff said he's still evaluating more changes to the company and hasn't ruled anything out.

``We're trying to evolve the business to be a business that continues to grow shareholder value,'' he said. ``I just don't take things off the table.

(The company will host a conference call to discuss the job cuts tomorrow at 9 a.m. New York time. To access the call, go to http://ir.earthlink.net.)

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: August 29, 2007 09:08 EDT