The Beijing-based company’s net profit plummeted 51 percent year-on-year to $105 million, but was ahead of a 59 percent drop expected by analysts. Lenovo’s quarterly revenue also rose by 3 percent to $10.7 billion, but missed analyst expectations for .29 billion.
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The cuts are intended to cut expenses by around $650 million in the second half of this year and around $1.35 billion annually, Lenovo chairman and chief executive Yuanqing Yang wrote in a letter to employees today following the Chinese company’s earnings release for the quarter that ended on June 30.
The company will restructure its Mobile Business Group by making the Motorola team responsible for designing, developing and manufacturing smartphones. “We will reduce costs in our PC business and increase efficiency in order to leverage industry consolidation increase share and improve profitability”.
Lenovo’s Hong Kong-traded shares have lost more than a fifth in the past year.
Lenovo said it was also hurt by “a rapidly shifting technology demand landscape” in the enterprise business, following its purchase of IBM’s x86 server business for US$2.1 billion previous year. This performance resulted from several factors including intensifying competition, long product development lifecycles with related inventory issues, macroeconomic issues in Brazil (a large market for Motorola), and a fixed cost structure that was out of balance with the losses incurred.
During the earnings call, Yang said the Motorola business takes $2 billion to run.
Lenovo maintained its position at the top of the PC market in the second quarter, with 19.7% market share, according to market research firm Gartner. The ThinkServer brand that targets small and medium sized enterprises increased over 40 percent.
That was impacted by a 13 per cent year on year decline in Lenovo’s core personal computer business during the quarter to US$7.28 billion.
Lenovo mobile phone revenue rose 33 percent to $2.1 billion-due to the inclusion of revenue from Motorola. Global computer shipments dropped last quarter as consumers awaited Microsoft Corp.’s next operating system.
But even with the cost cutting, Lenovo is confident the restructuring will lead to robust smartphone growth over time.
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With over $30B+ in sales, Lenovo is the fastest growing major PC maker. This represented 30 percent of Lenovo’s total worldwide sales. Lenovo was #3 in the US, with a record 13 percent share and strong 8.8 percent shipment growth. In Enterprise, the company is poised to capture new opportunities in the future.
