By Eva Dou
BEIJING--Chinese PC maker Lenovo Group Ltd. said it would cut
jobs and restructure as it continues the integration of two major
acquisitions, after reporting a 51% slump in fiscal first-quarter
earnings.
The news sent shares of Lenovo, which bought smartphone maker
Motorola Mobility and International Business Machines Corp.'s
low-end server unit last year, to their lowest level in nearly 18
months.
The company faces tough conditions as the global
personal-computer market continues to contract and China's
smartphone market becomes saturated.
Chief Executive Yang Yuanqing said in a statement that the past
quarter was possibly "the toughest market environment in recent
years."
The world's largest PC maker by shipments said Thursday it will
cut 10% of its nonmanufacturing positions, or 3,200 people, as part
of a $650 million cost-cutting program in the second half of the
fiscal year. That equates to 5% of its total head count.
Analysts have been bearish about the near-term outlook for
Lenovo. The global PC market contracted 11.8% in the second
quarter, while the Chinese smartphone market has saturated,
shrinking in the first quarter for the first time in six years,
according to market research firm IDC.
"The market has eroded faster than anyone had predicted," said
Patrick Moorhead, principal analyst of Moor Insights &
Strategy. "All bets are off at this point."
The company's Hong Kong-listed shares were down 5% at 8.05 Hong
Kong dollars ($1.04) Thursday morning following an earnings call,
falling to their lowest since late February 2014.
Mr. Yang said in the earnings call Thursday that he will
restructure Lenovo's mobile business, which is losing market share.
Lenovo will launch fewer models and put greater focus on the
recently acquired Motorola brand. The company will book $900
million in restructuring and smartphone inventory clearing costs in
the next quarter.
Lenovo's purchase of Motorola boosted it to No. 3 in global
smartphone rankings, but it fell to No. 5 in the second quarter
with a 4.5% market share, according to Counterpoint Research. Two
Chinese peers, Huawei Technologies Co. and Xiaomi Corp., surpassed
it in shipments that quarter.
Lenovo will refocus its enterprise business--which includes the
newly acquired IBM server unit--on fast-growing sectors such as the
"hyperscale" data centers commonly used by Internet companies and
converged systems.
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. Revenue for the period rose 3% to $10.7 billion from
$10.4 billion.
The company's Chief Financial Officer Wong Waiming said on the
earnings call that he expects limited impact from China's
devaluation of the yuan this week, as Lenovo's main operating
currency is the U.S. dollar, and it also hedges its currency risks.
Mr. Yang said the depreciation wasn't large enough to affect demand
in China, and the cost would be absorbed by either manufacturers or
consumers.
Lenovo maintained its position at the top of the PC market in
the second quarter, with 19.7% market share, according to market
research firm Gartner. Its market share rose marginally from a year
earlier, although the company saw its shipment number fall
year-over-year for the first time since the second quarter of
2013.
Lenovo spent roughly $5 billion last year to buy the Motorola
smartphone business from Google Inc. and IBM's low-end server
unit.
Write to Eva Dou at eva.dou@wsj.com
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