Lenovo to cut jobs as it faces 'severe' challenges

Lenovo has described the quarter ending 30 June 2015 as “solid” despite missing revenue expectations, a year-on-year net profit decline and announcing plans to cut jobs worldwide.

The Chinese firm posted revenue of $10.7bn, which was below market expectations despite being 3% up on the equivalent period a year ago.

Its pre-tax income for the quarter fell 80% year-on-year to $52m, net income dropped 51% to $105m, and its mobile division saw a pre-tax loss of $292m.

Lenovo said the quarter posed “severe challenges” in its main markets, with significant declines in the global PC and tablet markets, as well as slowing growth and increasing competition in smartphones.

The company said there were also macroeconomic challenges in Brazil and Latin America, big currency fluctuations and rapidly shifting technology demands in the enterprise business.

“Despite this tough environment, Lenovo continued to deliver solid results,” the company said in a statement.

Attempting to put a positive spin on the quarter, the firm said its PC business reached a record worldwide share of 20.6%, gaining share in every geography and achieving third position in the critical US market with a record high market share of 13%.

Lenovo said it had also gained nearly one point of share in the tablet market, strengthening its position to number three.

In smartphones, the company said it had accelerated its shift from a carrier-focused business model in China to the open market in the rest of the world, which drove Lenovo-brand smartphone volume outside China up 68% year-on-year.

However, Lenovo said that in the face of financial results that did not meet expectations, it plans several measures to cut costs to return to profitable, sustainable growth.

These measures include restructuring the mobile business group to align smartphone development, production and manufacturing; repositioning the enterprise business group to attack the most relevant and attractive market segments; accelerating the drive for a 30% share of the PC market; and improving efficiency.

The restructuring in its mobile business group will result in a simpler, streamlined product portfolio with fewer, more clearly-differentiated models, the company said.

Lenovo aims to cut costs by $650m in the second half of 2015 and by about $1.35bn annually.

Actions will include cutting 3,200 jobs around the world, which equates to 10% of non-manufacturing jobs and 5% of total jobs, the company said.

Lenovo said it expects to incur restructuring costs of about $600m and additional spending to clear a smartphone inventory of around $300m.

Yuanqing Yang, chairman and CEO of Lenovo, said: "Last quarter, we faced perhaps the toughest market environment in recent years, but we still achieved solid results. Our PC business remained number one for the ninth straight quarter. In the smartphone business, our strategic shift from China to the rest of world has paid off. And our combined enterprise business achieved operational PTI [pre-tax income] for the third consecutive quarter.

"But to build long-term, sustainable growth, we must take proactive and decisive actions in every part of the business. We will further integrate elements of the acquisitions with our legacy businesses in mobile and enterprise, while building the right business model and cost structure. 

"We will reduce costs in our PC business and increase efficiency in order to leverage industry consolidation, increase share and improve profitability. We will come through these efforts as a faster, stronger and better-aligned global company.”

Yang told Reuters that Lenovo stands by the acquisition of Motorola, which cost $2.91bn in 2014. He said it would take two to three quarters to restructure Motorola and Lenovo's smartphone divisions.