There’s no room for sentiment or emotion in business, as Lenovo showed today when it reported an 80 per cent crash in pre-tax profits and plans to axe 3,200 jobs across the group.
Revenues for the three months ended 30 June grew three per cent, excluding the impact of for-ex conversions to $10.7bn – but the firm saw a 47 per cent hike in expenses to $1.55bn.
This obliterated operating income, which fell 67 per cent to $96m. “Other” non operating expenses came in at $44m which took pre-tax profit to $52m, dropping four fifths on a year ago.
“Last quarter, we faced perhaps the toughest market environment in recent years,” said chairman and CEO Yuanqing Yang.
The perfect storm included a shrinking PC and tablet market that resulted in some stock write downs, macroeconomic “challenges” in Latin America, and intense competition that Lenovo said “hurt” Motorola’s bottom line. And it saw a “rapidly shifting technology landscape in the enterprise business.”
In the quarter, Lenovo was also forced to write down PC stocks in Europe, as the company admitted, amid the severe slowdown in sales that hit all vendors. The company was not explicit on how much this cost.
The response from the company is to seek out cost savings of $1.35bn on an annual basis that in part involves shedding thousands of jobs, the boss man confirmed.
“We must be proactive and decisive now,” said Yang, “though very difficult, this action will include a reduction in workforce of about 3,200 people.” This equates to ten per cent of the non-manufacturing headcount or five per cent of all employees.
The other actions includes a restructure of the mobile business group including improving efficiencies in the supply chain to “create a faster, leaner business model”, the CEO said.
The Enterprise Business, which includes the x86 division acquired from IBM, is to target the “most relevant and attractive market segments”. The firm will endeavour to up its speed to market and “cost competitiveness”. Watch out, HP and Dell.
Another solution Lenovo has hit upon is to go even harder at the PC market to “accelerate our drive to 30 per cent share”, said the CEO. This includes “taking advantage of consolidation” and trying to become “more efficient” to drive down costs and bolster the bottom line.
During the quarter and despite the result, Lenovo managed to decline more slowly than the market average so it took share. According to Canalys it became the biggest shifter of PC tin.
The PC group recorded saw shipments decline seven per cent. As such, revenue fell 13 per cent to $7.282bn, accounting for 68 per cent of total company revenues.
The Mobile Business Group upped revenue by 33 per cent to $2.1bn as global tab shipments rose four per cent and smartphones edged up two per cent.
The Enterprise Business Group grew revenues 41 per cent to $1.07bn as it included sales from IBM’s Intel server unit, and was 5.8 times larger year-on-year.
Cloud services and consumer electronics contained in the “Others” section of the operation came in at $243m. ®