Lenovo to cut staff as sales of Motorola phones fall

Beijing-based Lenovo said the restructuring would yield savings of about US$1.35 billion a year. But the difficulty in selling handsets, combined with a continuously shrinking global market for personal computers, meant the firm was facing its "tough
Beijing-based Lenovo said the restructuring would yield savings of about US$1.35 billion a year. But the difficulty in selling handsets, combined with a continuously shrinking global market for personal computers, meant the firm was facing its "toughest market environment in recent years", chief executive Yang Yuanqing (above) warned.

BEIJING • China's Lenovo Group will lay off 10 per cent of white-collar staff after Motorola handset sales fell by a third, raising doubts about the personal computer giant's bet that a money-losing brand which it bought for nearly US$3 billion (S$4.2 billion) will help it become a global smartphone leader.

Shares in the world's biggest maker of personal computers (PCs) slid nearly 9 per cent yesterday after it said its quarterly net profit had been halved as its mobile phone division lost nearly US$300 million.

Lenovo, which uses the US dollar in operations rather than the recently devalued Chinese yuan, said that it planned to cut about 3,200 non-manufacturing jobs at a one-time cost of US$600 million.

Beijing-based Lenovo said that the restructuring would yield savings of about US$1.35 billion a year.

But the difficulty in selling handsets, combined with a continuously shrinking global market for PCs, meant the company was facing its"toughest market environment in recent years", chief executive Yang Yuanqing warned.

"I still believe mobile is a new business we must win," Mr Yang told Reuters, saying Lenovo's ambition to rival Apple and Samsung in smartphones remained undimmed.

Motorola, bought from Google last year for US$2.91 billion, shipped 5.9 million handsets in the quarter, a 31 per cent decline from a year earlier.

Mr Yang cited poor sales in Brazil and China, saying Lenovo would prioritise the marketing of smartphones outside its home turf, where market saturation and price wars have hobbled firms, from Samsung to domestic start-up Xiaomi.

Lenovo fell to a two-year low in Hong Kong trading after posting first-quarter sales that trailed analyst estimates, highlighting China's slowing economic growth.

The shares dropped 9.1 per cent to close at HK$7.70 (S$1.39), the lowest since September 2013. The stock is down 25 per cent this year, the third-worst performance on the benchmark Hang Seng Index.

Revenue for the quarter ended June was US$10.7 billion, compared with the US$11.5 billion average of analyst estimates.

"We expect near-term share price weakness on the back of soft earnings," Barclays analysts Kirk Yang and Ric Cheng said in a report.

"The bottom line is that we continue to expect this quarter and next quarter to be transition quarters, as Lenovo is in the process of turning around its mobile and server businesses."

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 14, 2015, with the headline 'Lenovo to cut staff as sales of Motorola phones fall'. Print Edition | Subscribe