A Lenovo outlet in Yichang, Hubei province. The company announced a 51-percent year-on-year decline in net income for its first fiscal quarter on Thursday. (Liu Junfeng/China Daily)
Tech firm says Q1 net income fell by 51% on poor smartphone sales
Lenovo Group Ltd said on Thursday it will lay off 3,200 employees after it announced a 51-percent year-on-year decline in net income for its first fiscal quarter which ended in June.
The cuts, which will mainly occur in the company's newly acquired Motorola Mobility unit, represent roughly 10 percent of its global non-manufacturing headcount.
Yang Yuanqing, chairman and chief executive of Lenovo, said poor smartphone sales and worsening global demand for personal computers necessitated the job cuts.
"We are planning to reduce expenses by about $1.35 billion for this fiscal year, including reductions of about $800 million from the Motorola unit," Yang told China Daily in a telephone interview.
"Lenovo is facing extremely intense challenges in the smartphone market and we need quick actions to address the problems." Yang, however, did not disclose any further details about the layoff plan.
Hit by slowing PC and smartphone demand, the company's net profit dropped to $105 million in the first quarter, compared with $214 million a year ago, Lenovo said. In the PC business, which has been Lenovo's cash cow till now, pretax income fell by 8 percent year-on-year despite a growth in market share.
Lenovo shares fell by more than 5 percent in Hong Kong on Thursday to HK$8.01 ($1.03), an 18-month low.
Antonio Wang, a Beijing-based analyst with research firm International Data Corporation, said the global slowdown in smartphone sales has forced Lenovo to find new ways to cut operating costs.
"I think it is reasonable (for Lenovo to cut jobs) as the international market has not been bright and all the players are facing strong headwinds," Wang said. He expects the company to rebound after witnessing another quarterly drop in profits.
"Lenovo wants to be fully exposed to the losses in the current and subsequent quarters and will try to regain its growth trajectory later this year," Wang said.
Lenovo also pledged to release new Moto smartphones every six months to stay competitive in the handset business.
Chen Xudong, Lenovo's senior vice-president in charge of mobile businesses, said sales of Motorola's G and X series missed targets because of slow device updates and decision-making.
"Lenovo smartphones did not perform well in China due to unsuccessful product designs and marketing strategies," Chen said.
According to Chen, the company is attempting to seek new opportunities in other emerging markets such as the Middle East and Africa to lift shipments.
The 16.2 million units of Lenovo and Motorola smartphone shipped in the second quarter registered a mere 2.4 percent annual growth, while Apple Inc, Huawei Technologies and Xiaomi Corp recorded more than 30 percent growth in shipments, according to IDC.
Lenovo purchased Motorola from Google Inc in early 2014 for $2.9 billion.
Chen admitted that Lenovo handsets are "too complicated" for customers to understand. The company will focus on one or two flagship devices to reach more Chinese buyers in the future, he said.
Lenovo now has three sub-brands for smartphones. Besides Lenovo and Motorola branded devices, its affiliate launched a ZUK-branded affordable phone two days ago, targeting the 2,000 yuan ($333) market.
Nicole Peng, research director at Shanghai-based consultancy Canalys China, said Lenovo fell out of the top five in the second quarter because of sluggish sales and lower China market share.
Peng said Lenovo needs to completely overhaul its smartphone lineup.
