PC vendor Lenovo Group Ltd is to cut its headcount by approximately 5% as part of its latest attempt to hit ambitious growth targets following the completion of its acquisition of IBM Corp’s PC business in April 2005.
The Purchase, New York-based company is to shed 1,000 full-time jobs across the world in what it euphemistically called a plan for enhanced responsiveness to customers, global competitiveness and operational efficiencies.
The plan will see Lenovo integrating its sales service, support, and fulfillment operations in the Americas, Asia Pac, and EMEA, streamlining global sales and marketing, centralizing its desktop team in China, reducing its supply chain, and moving corporate functions from New York to its facility in Raleigh, North Carolina.
Lenovo stated that the plan would be completed in six-to-12 months and would produce run-rate savings of about $250m, while the company will take a restructuring charge of about $100m, most of it in its fourth fiscal quarter, which ends March 31.
The latest changes are part of a series of alterations that have taken place since Lenovo splashed out $1.75bn on IBM’s PC business. It restructured its operations globally in October 2005 to unite its Lenovo and IBM personal computing divisions and combine previously separate product groups, and supply and sales structures.
The announcement came after the company stated in mid-September that it intended to grow at twice the industry growth rate over the next five years by focusing on increasing its market share in emerging regional markets such as China, India, Brazil, and Russia.
Then it late December the company announced that it had hired William Amelio, the former Asia-Pacific chief for Dell, as its new chief executive, replacing Stephen Ward who joined the company with its acquisition of IBM’s PC business.
In a statement, Amelio maintained that 1,000 job cuts are essential if Lenovo is to achieve its growth targets. We have thoroughly examined Lenovo’s competitive position, and it’s clear that for the future of the company we have to take these actions, he said.
Profitability was always likely to be a struggle for Lenovo following the acquisition of IBM’s PC division, but it is something that the company has achieved. Figures provided by IBM to the Securities and Exchange Commission in January 2005 showed the business made losses of $397m in 2001, $171m in 2002, $258m in 2003, and $139m in the six months to June 30, 2004.
It was therefore somewhat surprising that the newly combined Lenovo posted a profit of $45.8m on revenue of $2.5bn in August 2005 and announced that IBM’s former PC unit, which had contributed two months’ worth of figures to that first quarter result, was profitable.
The second quarter saw the company boost profit to HKD 345.2m ($46m) on revenue of HKD 28.5m ($3.6bn), although shares fell following the November announcement as analysts were looking for profit in the region of HKD 433m.
Third quarter results for the period ended December 31, 2005, also prompted a share price drop in January this year after brokers cut their ratings following profit of HKD 365m ($47m) on revenue of HKD 31.1bn ($4.0bn).