Despite an increase in its first-quarter revenue, Chinese computing giant Lenovo has seen a significant drop in its profit, and in response will be restructuring its business.
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Revenue grew three percent to $10.7 billion, but fell short of Bloomberg analysts’ average estimates of $11.5 billion.
“A better net income indicates Lenovo was able to trim more costs in its handset and server businesses”, Alberto Moel, who rates the stock outperform at Sanford C. Bernstein in Hong Kong, said before the earnings announcement.
Personal computers are still core business to Lenovo, accounting for $7.3 billion of its $10.7 billion of business.
Lenovo, the world’s largest PC maker by shipments, is grappling this year with the integration of two major acquisitions-smartphone maker Motorola Mobility and IBM’s x86 server unit-against challenging market conditions. In spite of all this, things are about to shift big time at Lenovo as the company’s CEO Yuanqing Yang wrote a letter to the company today stating that they would be altering some of their focus for products in the mobile space going forward. The company’s smartphone business lost share to local rivals Huawei Technologies Co. and Xiaomi Corp., according to IDC. Restructuring costs will be about $600 million, and a further $300 million to clear smartphone inventory.
As a result, Lenovo said it would be removing 3,200 non-manufacturing jobs, around 10 percent of its non-manufacturing workforce.
But moving towards mobile has presented challenges for the company as demand weakens in China in the face of increased competition from affordable domestic brands. It solidified its worldwide #3 position with 5.6 percent, growing shipments 3.8 percent year-over-year, to 2.5 million units, while taking share from the #1 and #2 players.
Analysts have been bearish about the near-term performance outlook for Lenovo, given macroeconomic trends. For its part, Motorola shipped 5.9 million smartphones, a drop of nearly one-third year on year.
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The company reported second quarter earnings that failed to meet its expectations. The company has set a target to achieve $5 billion in revenue after the close of the System x deal. Global computer shipments dropped last quarter as consumers awaited Microsoft Corp.’s next operating system.
