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By | Kelly Fiveash 8th January 2009 11:53

Lenovo ditches 2,500 employees

Execs can stay, but get pay cut

Computer giant Lenovo has confirmed that it will slash 2,500 jobs, or 11 per cent of the workforce, as part of a restructuring plan to cut costs after the firm’s sales were hit by weakening global demand.

The Beijing-based company, which is the world’s fourth biggest PC vendor, has also forecast a quarterly loss for this period as it swallows painful restructuring costs.

In an effort to offset Lenovo’s sales decline, the firm plans to cut-and-shut its workforce by “consolidating” its China and Asia Pacific outfits into a single Asia Pacific and Russia (APR) biz unit.

"Although the integration of the IBM PC business for the past three years was a success, our last quarter's performance did not meet our expectations," Chairman Yang Yuanqing said in a statement.

Lenovo acquired IBM’s struggling PC unit for $1.25bn – as well as an assumption of debt – in 2005.

Big Blue’s decision to sell its PC unit saw Lenovo take on a business that had suffered nearly $1bn in losses in the three years leading up to the acquisition. More recently IBM, which still has shares in the unit, has continued to back away from Lenovo scaling down its remaining stake in the business over the past year or so.

Yuanqing said the rejig would also put a dent in Lenovo exec’s wallets. The vendor will cut merit pay and long-term incentives by 30-50 per cent, he said.

Shares of the firm were suspended earlier this week with the Hong Kong market reacting nervously to the expected restructuring plan. They closed 26 per cent lower at HK$1.91 following Lenovo’s announcement.

It said 2,500 jobs at the company would be axed over the next three months, and expects to keep $300m in the piggy bank for the year ended March 2010.

Lenovo said it will swallow a $150m pre-tax restructuring charge for its 2008/09 fiscal year, which will show up in the current January/March quarter.

Lenovo isn't the only computer vendor announcing job cuts today. Dell is also having to react to a softening of sales in the PC market by closing its Limerick manufacturing plant and sacking about 1,900 employees. ®

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