PC slump drags Lenovo down

By Zhang Ye Source:Global Times Published: 2015-8-13 23:43:01

Global layoffs part of plan to revive profit

Workers assemble Lenovo PCs in a Lenovo plant in Chengdu, capital of Southwest China's Sichuan Province. Fil photo: IC

Shares of Lenovo Group slid more than 9 percent on the Hong Kong bourse during trading on Thursday after the company announced a fall in quarterly profits and a global layoff program intended to cut costs.

With net profit halving for the three months ended June 30, the world's largest PC vendor by shipments disclosed in a filing on Thursday that it would axe 3,200 non-manufacturing jobs around the world, or about 5 percent of its total workforce.

The move is part of an effort to return to growth, the company said.

Lenovo's unaudited report released early on Thursday showed that its net profit during the first fiscal quarter tumbled 51 percent year-on-year to $105 million. Revenue grew 3 percent to $10.7 billion, missing Bloomberg analysts' consensus estimate of $11.5 billion.

Beijing-headquartered Lenovo said that the restructuring, which will cost up to $600 million, is likely to reduce expenses by about $1.35 billion on an annual basis and about $650 million in the second half of the year, according to the filing.

The shares closed down 9.1 percent to HK$ 7.70 (99 cents).

Lenovo has been battling a contraction in global demand for PCs, which accounted for 68 percent of its total revenue in the first quarter.

An earlier July report by US-based market consultancy Gartner said that worldwide PC shipments amounted to 68.4 million units in the April-June period, down 9.5 percent from the previous year.

Revenue of Lenovo's PC business declined 13 percent year-on-year to $7.28 billion.

"There's no perceptible growth in global PC sales, which means Lenovo has no choice but to streamline its PC business and cut jobs," Wang Yanhui,  head of the Shanghai-based Mobile China Alliance, told the Global Times on Thursday.

To offset the decline in PCs, the company has diversified into other sectors including the mobile industry, which contributed $2.1 billion to its total revenue in the latest quarter, up 33 percent year-on-year.

Wang said that the mobile business would have achieved a faster growth rate had Lenovo made better use of Motorola.

It seems that the takeover of Motorola from Google Inc in 2014 has not yet enabled Lenovo to snare market share away from competitors in China's red-hot smartphone battleground.

Sales of Motorola handsets dropped 31 percent year-on-year during the quarter, which the company attributed in the filing in part to intensifying competition, macroeconomic issues in Brazil - a large market for Motorola - and long product development lifecycles with related inventory issues.

Smartphone upstart Xiaomi Inc and leading domestic telecommunications equipment firm Huawei Technologies Co overtook Lenovo in terms of global smartphone shipments in the second quarter with 5.3 percent and 8.9 percent shares, respectively, according to a report issued by another US market research firm International Data Corp late in July.

Lenovo (including Motorola) held 4.8 percent in the second quarter, dropping from a share of 5.2 percent over the same period in 2014.

Apart from the competition, Wang Jun, an industry analyst with Beijing-based market consultancy Analysys International, told the Global Times on Thursday that the Motorola takeover has yet to bear fruit, as Lenovo still needs more time to digest the acquisition in terms of management and product design.

But even as Lenovo confronts fierce competition in its home market, it may still get some opportunities in the overseas markets based on the advantages of Motorola's brand recognition and patent portfolio, according to both analysts.

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