China’s Lenovo cuts more staff amid lacklustre smartphone business

Some 1,100 employees laid off as part of ongoing restructuring at the company’s mobile operation

PUBLISHED : Tuesday, 27 September, 2016, 7:19pm
UPDATED : Tuesday, 27 September, 2016, 11:01pm

Chinese technology giant Lenovo Group is implementing another round of layoffs across the company, as it struggles to revive its flagging smartphone business amid a lingering global economic slowdown.

In a statement issued on Tuesday Lenovo said the new job cuts affected “less than 2 per cent of its approximately 55,000 employees globally”.

“The majority of the positions being eliminated are part of the ongoing strategic integration between Lenovo and its Motorola smartphone business,” the company said.

The staff reduction follows the recent forecast by research firm Gartner of flat worldwide information technology spending this year, totalling US$3.41 trillion.

Gartner also predicted global smartphone sales to increase by only 7 per cent this year to 1.5 billion units, compared with 14.4 per cent growth last year.

The World Trade Organisation on Tuesday forecast global trade to expand slower than expected this year to just 1.7 per cent, well below the 2.8 per cent growth it estimated in April.

The latest retrenchment at Lenovo has come 11 months after the company slashed 10 per cent of its non-manufacturing workforce, or 3,200 employees, under a sweeping restructuring unveiled in August last year.

The world’s largest supplier of personal computers incurred US$600 million in restructuring costs and a US$300 million write-off of its smartphone inventory.

“We will come through these efforts as a faster, stronger and better aligned global company,” Lenovo chairman and chief executive Yang Yuanqing said at the time.

Lenovo, which operates in more than 160 countries, apparently decided further measures were needed, which it said included the streamlining of its mobile business group’s product portfolio “to best compete in the global smartphone market”.

“The company is also making adjustments in other areas of the business as part of a continued effort to manage costs, drive efficiency and support ongoing improvement in overall financial performance,” Lenovo said.

While these actions are never easy, they are a necessary part of our continued efforts to ensure long-term, profitable growth across all of our businesses
Lenovo statement

“While these actions are never easy, they are a necessary part of our continued efforts to ensure long-term, profitable growth across all of our businesses.”

Lenovo last month reported that its total revenue fell 6 per cent to US$10.06 billion in its fiscal first quarter ended June 30, compared with US$10.72 billion a year earlier. Sales at its mobile business group, which includes smartphones under the Motorola and Lenovo brands, were down 6 per cent year on year to US$1.7 billion in the same period.

Lenovo purchased Motorola Mobility for US$2.91 billion from Google in 2014, representing the Chinese company’s biggest-ever corporate acquisition.

Despite the optimism expressed by Lenovo’s senior management about absorbing that major operation, analysts have pointed out that the road to integration was fraught with tough challenges. That was certainly the case as Lenovo failed to keep up with other Chinese smartphone brands, including Huawei Technologies, Oppo, Vivo and Xiaomi.

Bernstein Research senior analyst Alberto Moel said in a report that Lenovo’s mobile business group remained “a work in progress”.

Nomura analyst Huang Leping recently estimated that Lenovo “would need US$11 billion revenue to reach a break-even point [for its smartphone business] in its current fiscal year”.

Lenovo chief operating officer Gianfranco Lanci said in June that the company must complete the revamp of its smartphone supply chain “within this year to gain the advantage in managing inventory and parts supplies, as well as provide flexibility in the factory”.

Apart from the technology industry, economists have also warned that the economic downturn has also made the tourism, construction, financial services and property sectors vulnerable to layoffs.