Lenovo to axe more jobs in revamp

Mainland computer maker expects to save US$150m a year in new shake-up

Lenovo Group, the world's third-largest personal computer maker, plans to shed about 1,000 jobs worldwide in a new round of corporate restructuring, according to an industry source.

The shake-up, expected to happen 'soon', would affect about 400 positions in Greater China and cost the mainland company about US$60 million in restructuring charges, the source said. Some staff would be redeployed while others would be laid off.

It will be the second restructuring for Hong Kong-listed Lenovo since it acquired the former personal computing unit of US-based International Business Machines Corp in May 2005. Lenovo laid off about 1,000 staff in March last year and incurred a US$100 million restructuring charge in a bid to integrate its global sales and back-office functions. That effort was designed to achieve annual savings of about US$250 million from the next financial year, which begins in April.

The latest cost-cutting is expected to result in annual savings of about US$150 million, as several hundred workers would be moved to new positions, the source said.

He said Lenovo wanted to further cut costs as it tried to grow business outside the mainland.

A spokesman for Lenovo could not be reached for comment.

Local market analysts said they did not expect Lenovo to pursue more restructuring beyond last year's changes.

'We believe Lenovo is turning the corner and has the right plan,' said William Bao Bean, an analyst at Deutsche Bank.

Another analyst said: 'Lenovo will not consider another round of lay-offs because it knows that the focus should be on growing market share and revenues.'

The industry source said a new restructuring was considered precisely because significant operating cost reductions remained elusive for Lenovo.

That situation was made apparent by the impact on the firm's earnings for the December quarter of marketing fees from a confidential US$100 million, one-year partnership deal with semiconductor giant Intel Corp, as reported online by Forbes Asia and Finance Asia.

The source said Lenovo booked US$22 million from the Intel-backed incentive programme to its third-quarter earnings while the rest would be booked over the next three quarters.

The incentives, including so-called market development funds and non-recurring engineering expenses, were designed to increase use of Intel chips in Lenovo computers.

The source said the cash incentives, not mentioned in the earnings results, helped Lenovo report better than expected net profit of US$57.7 million for the three months to December on sales of US$4 billion.

The results also led analysts to write glowing reports about the turnaround which Lenovo had credited to its cost-cutting efforts and increased competitiveness. One market source said 'almost all' of the chips Lenovo would use this year would come from Intel - about 17 million. Before the deal, about 40 per cent of the chips Lenovo used came from Intel's main rival, AMD.

Lenovo would neither admit nor deny the booking.

'Lenovo strictly adheres to the highest standards of transparency and our reporting practices are consistent with or exceed all legal and accounting requirements,' said Raymond Gorman, an executive director for external communications at Lenovo, when asked about the deal.

It was up to a company to determine the significance of marketing deals with a supplier and on whether that information must be disclosed to the market.

'There is no standard for such a disclosure. It is not mandatory,' said Jeffrey Chan, a director at corporate finance adviser and investment services firm Oriental Patron Asia.