China’s Lenovo Group Ltd (聯想) is to lay off 10 percent of white-collar staff after sales of Motorola handsets fell by a third, raising doubts over the personal computer giant’s bet that a money-losing brand it bought for nearly US$3 billion might help it become a global smartphone leader.
Shares in the world’s biggest maker of personal computers slid nearly 9 percent yesterday after Lenovo said its quarterly net profit was halved as its mobile division lost nearly US$300 million.
Lenovo, which uses the US dollar in operations rather than the recently devalued Chinese yuan, said it plans to cut about 3,200 non-manufacturing jobs with a one-time cost of US$600 million.
Beijing-based Lenovo said the restructuring would yield savings of about US$1.35 billion on an annual basis, but the difficulty in selling handsets, combined with a continuously shrinking global market for PC’s, meant the firm was facing its “toughest market environment in recent years,” chief executive officer Yang Yuanqing (楊元慶) said.
“I still believe mobile is a new business we must win,” Yang said in an interview, saying Lenovo’s ambition to rival Apple Inc and Samsung Electronics Co in smartphones remains undimmed.
“I still believe this acquisition [Motorola] was the right decision. Except Apple and Samsung there is no third strong [global] player. I believe that will be Lenovo,” he said.
Motorola, bought from Google Inc last year for US$2.91 billion, shipped 5.9 million handsets in the quarter, a 31 percent decline from a year earlier. Yang cited poor sales in China and Brazil, saying Lenovo would prioritize marketing smartphones outside its home turf, where market saturation and price wars have hobbled firms from Samsung to domestic startup Xiaomi Corp (小米).
At 6am, Lenovo shares were down 8.7 percent, hitting their lowest level since February last year.
For the quarter, revenue rose 3 percent to US$10.7 billion, but missed analyst expectations for US$11.29 billion, according to analysts polled by Thomson Reuters SmartEstimates. Net profit plummeted 51 percent to US$105 million, but analysts had estimated it would fall 59 percent.
Looking ahead, executives downplayed the effect of China’s yuan depreciation, saying the company was well hedged and its gross margins would be largely unaffected. Yuan depreciation has “no significant implication to our cost of borrowing,” chief financial officer Wong Waiming (黃偉明) said.
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