Lenovo to cut 3,200 jobs as sales slide, profit tumbles
REUTERS
BEIJING - China's Lenovo Group Ltd. will lay off 10% of white-collar staff after sales of Motorola handsets fell by a third, raising doubts over the personal computer giant's bet that a money-losing brand it bought for nearly US$3 billion will help it become a global smartphone leader.
Shares in the world's biggest maker of PCs slid nearly 9% on Thursday after it said its quarterly net profit was halved as its mobile division lost nearly $300 million. Lenovo, which uses the U.S. dollar in operations rather than the recently devalued Chinese yuan, said it plans to cut about 3,200 non-manufacturing jobs with a one-time cost of $600 million.
Beijing-based Lenovo said the restructuring would yield savings of about $1.35 billion on an annual basis. But the difficulty in selling handsets, combined with a continuously shrinking global market for PCs, meant the firm was facing its "toughest market environment in recent years," chief executive Yang Yuanqing warned.
"I still believe mobile is a new business we must win," Yang told Reuters in an interview, saying Lenovo's ambition to rival Apple Inc and Samsung Electronics Co. in smartphones remains undimmed.
"I still believe this acquisition (Motorola) was the right decision...Except Apple and Samsung there is no third strong (global) player. I believe that will be Lenovo."
Motorola, bought from Google Inc last year for $2.91 billion, shipped 5.9 million handsets in the quarter, a 31% decline from a year earlier. Yang cited poor sales in Brazil and China, saying Lenovo would prioritize marketing smartphones outside its home turf, where market saturation and price wars have hobbled firms from Samsung Electronics to domestic startup Xiaomi Inc.
At 0600 GMT, Lenovo shares were down 8.7%, hitting their lowest level since late February 2014.
"The market was worried about a slowdown at Motorola and the China market share decline, and then they reported the investors' worst fears," said Nomura analyst Leping Huang. He said the stock drop could have been worse: "It's quite positive they can move so quickly to announce cost reductions and inventory writeoffs."
For the quarter, revenue rose 3% to $10.7 billion, but missed analyst expectations for $11.29 billion, according to analysts polled by Thomson Reuters SmartEstimates. Net profit plummeted 51% to $105 million, but analysts had estimated it would fall 59%.
Looking ahead, executives downplayed the effect of China's yuan depreciation, saying the company was well hedged and its gross margins would be largely unaffected. Yuan depreciation has "no significant implication to our cost of borrowing," said chief financial officer Wong Waiming.
Lenovo aims to dominate global PC markets after IBM deal
U.S., EU approve deal for $2.1B US purchase of low-end server business from IBM
CBC News Posted: Sep 29, 2014
China’s Lenovo Group aims to be the world’s biggest maker of personal computers after its deal to buy IBM’s low-end server business was approved by U.S. and EU regulators.
The $2.1 billion US deal, announced in January, but to close on Oct. 1, puts Lenovo in third place in PCs, behind Dell and Hewlett-Packard.
“After we stabilize the business, we will challenge the top two,” CEO Yang Yuanqing said in an interview with Bloomberg.
Within the first year of acquiring the server unit, Lenovo plans to build it into a $5 billion enterprise business and build on its 14 per cent market share. It is also acquiring a larger piece of the hardware market, which IBM has jettisoned as unprofitable.
Lenovo has a deal with NEC Corp. of Japan to dominate that market.
The cost of the IBM deal was about $200 million lower than the $2.3 billion initially announced, because of lower-than-projected inventories in the IBM unit.
Fears of China's online spying
The deal was cleared by the Committee on Foreign Investment in the U.S. despite fears over Chinese internet spying and the theft of trade secrets.
IBM servers are broadly utilized by the US government and in critical infrastructure operations.
But with computers from its competitors already made in China, Lenovo won approval for the IBM deal from Homeland Security.
Lenovo also bought Motorola Mobility for $2.9 billion US in a deal that will give it access to 2,000 patents and licences to Google smartphone intellectual property.
That deal has already had EU approval and Lenovo expects approval from the U.S. by the end of the year. That will make it No. 4 in the handset market with a brand that is well-known in the West.
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