Lenovo to cut jobs as PC market continues to contract

Lenovo’s layoff announcement follows Microsoft’s decision to cut 7,800 jobs from its phone division last month.

The company says it faced “severe challenges” including a slipping PC market and increased mobile competition in China, but characterized its results as “solid”.

Lenovo will shift its smartphone focus away from China, where some new vendors are playing irrationally, he said. This equates to about 10 percent of non-manufacturing headcount and about 5 percent of our total population of around 60,000 people.

Following a streamlining of the business, Lenovo will also create a simpler handset portfolio, with fewer models. The company targets to achieve 30 percent PC market share in three years.

The company is trying to turn around its mobile phones and server businesses after $5 billion of acquisitions last year, while battling a shrinking market for the personal computers that generate 68 percent of its sales.

Turning to Lenovo’s more resilient PC business, which reached a 20.6 percent global share during the quarter, Yang said that with the market declining the company had to push harder to maintain its position by reducing costs and improving efficiency.

Addressing the proposed restructuring efforts, Yang said, “We do not make these moves lightly”.

The news sent Lenovo shares down 9 percent on the Hong Kong stock exchange.

Lenovo also reported that its net income declined by 51 per cent to $105 million (£67 million) year-on-year, another substantial loss for the company.

The company, which operates in more than 160 countries, will incur US$600 million in restructuring costs and a US$300 million write-off of its smartphone inventory as part of the reorganisation at its mobile business. This was despite ringing up revenue of $2.1 billion. The group sold 16.2 million smartphones for the quarter, an increase of 2 percent, but it meant a half-percentage point drop in market share to 4.7 percent. In its third full quarter with System x, EBG delivered operational pre-tax income, although its standard PTI – which included non-cash, M&A-related accounting charges – was negative US$40 million.

In addition, there was a 47 per cent increase in operating expenses during the quarter to US$1.55 billion, up from US$1.06 billion a year earlier.