Zynga to Lay Off 520 Employees — 18 Percent of Staff — and Shutter New York and LA Offices in Refocus on Mobile

Zynga is laying off 18 percent of its workforce — which represents 520 employees — in a bid to reduce costs and more drastically restructure its troubled business toward mobile, according to sources close to the situation.

The move today will affect every part of the San Francisco social gaming company and cut $80 million in staff expenses. Zynga currently has about 2,900 workers.

But the action will also include the closing of its offices in New York, Los Angeles and Dallas, as well as the slashing of other major infrastructure costs, adding to a total reduction that is likely to be much larger.

Zynga continues to have big offices in San Francisco; Beijing, China; and Bangalore, India, as well as several small units across the U.S. (such as Seattle and San Diego).

Sources said that severance benefits will extend for several months and include some acceleration of stock options.

(Update: Zynga has halted trading on the Nasdaq stock market pending news.)

(Second update: Zynga confirmed layoffs and cost cuts, noting they will complete them by August.)

The reason? Mobile — a business Zynga must conquer, despite its currently smaller prospects for monetization compared to its Web business.

After a rocky IPO and trying to cope with rapid changes in its core businesses, Zynga now must refocus the company’s flagship franchises and network on the shift to mobile and a narrowing of focus at the company.

In other parlance, this is a “right-sizing” of Zynga to reflect a more somber reality that these mobile businesses are not as large as its Web-based one that rode the startup to glory on the explosive growth of social networks, primarily Facebook.

Sources said the reason for the more substantive cuts now, after earlier ones last fall, is because the decline of its Web business has been more drastic than anticipated, while the rise of its mobile business has been slower than needed. That’s been especially true on Facebook, which was once one of Zynga’s key money-making partners.

It has resulted in a perfect storm of trouble for Zynga, which has struggled with its business since its public offering, as investors have scrutinized the longevity of the hits-based online gaming business. Despite the continued strength of some of its big properties, such as FarmVille, the life cycle of most casual games has been short.

Zynga has tried to fix the situation by moving to the faster-growing mobile space. In addition, CEO and founder Mark Pincus has tried to solidify its top management, as well as bring in more board help, to strengthen efforts to revive the company.

Zynga has already been on the cost-cutting path, closing less successful games and other more ambitious products that had enjoyed less than expected traction. For example, the company has “sunsetted” 18 games in recent months, as it has deployed more resources and development to mobile efforts.