Lenovo to eliminate 3200 jobs to save $1.4 bn

Lenovo booked net profit of $105 million for its fiscal first quarter ended June, less than half the $214 million profit in the year-earlier quarter, but higher than analysts’ expectations of $86.7 million. Cutting employees isn’t the only way Lenovo will be looking to save cost though, and will also include getting rid of smartphone inventory to the tune of $300 million which could mean some steep discounts on Lenovo branded smartphones where they’re sold.

Thursday’s lay offs will help reduce Lenovo’s expenses by about $1.35 billion on an annual basis.

The company said its numbers were a result of “severe challenges” as it saw significant declines in PC and tablet sales across the world, and faced a slower growth and increased competition in China.

In a letter to his staff, Yang says while the company has delivered “solid” results in many areas, it still faces challenges and must be ‘proactive and decisive now… so that we can deliver profitable sustainable growth and achieve our long-term goals. Its PC group will trim costs while aiming at a 30 percent market share, and its enterprise group will “attack the most relevant and attractive market segments”.

Chief executive Yuanqing Yang said Lenovo was facing the “toughest market environment in recent years” and would restructure its lagging smartphone business at a one-time cost of $600 million.

The news sent shares of Lenovo, which bought smartphone maker Motorola Mobility and worldwide Business Machines Corp.’s low-end server unit last year, to their lowest level in almost 18 months.

“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”.

Total revenue advanced by just 3 per cent to US$10.72 billion from US$10.39 billion a year ago. For its part, Motorola shipped 5.9 million smartphones, a drop of nearly one-third year on year.

The company reported second quarter earnings that failed to meet its expectations. “MBG [Mobile Business Group] will continue to drive the overall mobile business, but will now rely on Motorola to design, develop and manufacture smartphone products”.

For tablets, the company shipped 2.5 million units, a jump of 5.6 percent.