Lenovo will make large-scale job cuts as it looks to build “the right business model, cost structure and competitive foundation” in markets including mobile.
On a group level, it will shed 3,200 jobs, around 5 per cent of its total, describing the positions at risk as “non-manufacturing” . It will incur restructuring costs of $600 million, with an additional $300 million spending to clear smartphone inventory.
The company said it will restructure its mobile unit, including the Motorola business it acquired last year, to “align our smartphone development, production and manufacturing and better leverage the complementary strengths of Lenovo and Motorola to quickly drive growth”.
This will include a shift to “a much simpler, more streamlined product portfolio with a reduced number of clearly differentiated models”.
Earlier this year, the company announced a management reshuffle in this unit.
The intention is to use Lenovo’s global sales force and speed efficiency actions already under way in the supply chain. While Lenovo’s Mobile Business Group (MBG) will “continue to drive the overall mobile business”, it is Motorola which will lead the design, development and manufacture of smartphones.
In the quarter (Lenovo’s fiscal Q1), the MBG reported a pretax loss of $292 million on sales of $2.1 billion. Sales were up 33 per cent year-on-year, which was attributed to the inclusion of Motorola revenue ($1.2 billion of the total).
The loss was attributed to weakness in China and at Motorola, as well as non-cash M&A accounting issues.
In a presentation, Lenovo said it is looking to cut mobile costs and expenses by $850 million.
And, despite a 2.3 per cent year-on-year increase in smartphone shipments to 16.2 million, “tough competition and a rapidly changing technology landscape” saw Lenovo’s share of the market decline 0.5 points to 4.7 per cent, making it the fifth largest player in this market.
The company’s aim is to gain a solid hold on the number three position, which it has held previously.
Motorola-branded shipments stood at 5.9 million, down 31 per cent year-on-year, which was attributed to factors including “intensifying competition, long product development lifecycles with related inventory issues, macroeconomic issues in Brazil, and a fixed cost structure that was out of balance with the losses incurred”.
Motorola recently refreshed its smartphone portfolio, which is set to reinvigorate its performance in the second half of 2015.
Lenovo reiterated its commitment to see profitability in Motorola in the coming 2-3 quarters, although this has now been extended to the MBG as a whole.
Tablets and PCs
Lenovo also shipped 2.5 million tablets, up 3.8 per cent year-on-year, to “solidify” its worldwide number three position, “while taking share from the number one and number two players”.
Mobile was not Lenovo’s only business to see struggles. Revenue in its core PC business decreased by 12.6 per cent to $7.28 billion, although looking at the positives, it said that it “gained share in every geography”.
And its Enterprise Business Group (EBG) will be repositioned to “attack the most relevant and attractive market segments”, having (similarly to the Mobile group) been bolstered by an acquisition – IBM’s System x unit. Revenue in this business increased nearly sixfold to $1.1 billion following the buy, and when including M&A related charges, it saw a loss of $40 million.
Lenovo said that it “remains confident that EBG will realise $5 billion in revenue with good margin one year after the close of the System x deal”.
For the quarter to 30 June 2015, Lenovo reported a group profit attributable to shareholders of $105 million, halved from $214 million year-on-year, on revenue of $10.72 billion, up 3 per cent.
“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,” said Yuanquig Yang, chairman and CEO of Lenovo.