Lenovo chief executive pledges to end losses at Motorola Mobility

Mainland PC manufacturer will make newly acquired phonemaker profitable in 6 quarters

PUBLISHED : Wednesday, 26 February, 2014, 1:15am
UPDATED : Wednesday, 26 February, 2014, 1:15am

Lenovo, which is buying Motorola Mobility from Google, plans to make the phonemaker profitable within four to six quarters without eliminating jobs, according to chief executive Yang Yuanqing.

"Don't be scared by the US$1 billon-a-year loss," Yang said at the Mobile World Congress in Barcelona yesterday. "We will improve that even from day one. Google is very good at software, ecosystems and services. But we are stronger in the manufacturing of devices."

The timetable is based on after the acquisition is completed, and Yang said he's optimistic Lenovo will receive regulatory approval.

Yang has bet he can use the purchases of Motorola and IBM's low-end server business, for a total of US$5 billion, to move beyond the shrinking personal-computer market to become a broader technology company. The acquisitions, both larger than any Yang has previously completed, will challenge his ability to absorb the new teams and find the cost savings to make the units profitable.

Don’t be scared by the US$1 billon-a-year loss. We will improve that

Improved profitability will come from increased production and sales as the company targets emerging markets, Yang said. The company will also seek to reduce costs from internal communication and computing services. Motorola's gross margins are already "pretty decent", he said.

Lenovo shares have slumped 29 per cent to HK$7.80, from HK$10.96 the day before the Motorola Mobility purchase was announced, on investor concerns that the unit would be a drag on profitability.

"A company should focus on not just the short-term performance, but also long-term sustainable growth," Yang said. "If we only focus on PCs, one to two years later we cannot further grow. So we must find a new area, so we can help our shareholders make more money, and see more growth. So I think our choice is the right choice."

Lenovo can "easily" cut 70 per cent of the Motorola business's operating expenses, according to estimates from Kirk Yang, an analyst at Barclays in Hong Kong.

Yang declined to comment on that estimate. The acquisition will create the world's third-largest smartphone vendor with about 6 per cent of the global market, trailing only Samsung and Apple, according to Strategy Analytics.

Yang said: "We could become a stronger player in the mobile market to challenge the top two."