Windows 10 PC Uptick? Not Yet, Lenovo Cuts Jobs, Restructures

Written by DH Kass 1
August 13, 2015

Lenovo said it will cut 10 percent of its non-manufacturing positions, some 3,200 workers or nearly 6 percent of its total workforce, as part of a $650 million restructuring and cost-savings program.

Two weeks out of the gate and Windows 10 doesn’t seem to have yet made a dent in the floundering PC market. Perhaps because many OEMs have yet to release Windows 10 optimized machines.

Still, count Chinese PC giant Lenovo, the longtime worldwide shipment leader, among the growing horde of PC makers succumbing to flagging sales with no spark yet igniting the segment.

Lenovo said it will cut 10 percent of its non-manufacturing positions, some 3,200 workers or nearly 6 percent of its total workforce, as part of a $650 million restructuring and cost-savings program it will implement in the second half of the fiscal year. The move could save it some $1.35 billion in the next 12 months, Lenovo said.

The company also said it will book some $900 million in restructuring costs and smartphone inventory write-offs next quarter.

Lenovo is struggling on two fronts, not only with PCs but also with smartphone sales in China as well, facing tough competition from rivals Apple (AAPL), Xiaomi and others. Difficult market conditions and trying to incorporate its blockbuster $5.2 billion acquisitions–IBM’s (IBM) x86 servers and Motorola Mobility’s mobile business–prompted Lenovo chief executive Yang Yuanqing to term the vendor’s current sledding “the toughest market environment in years.”

The company’s FQ1 2016 revenue rose 3 percent to $10.7 billion as its net profit plummeted 51 percent to $105 million when compared to the same time last year. Analysts expected the vendor to record net income of about $87 million.

Lenovo’s restructuring plans center on its mobile business, where it will pare its model lineup and feature the Motorola brand, and enterprise servers, where it will concentrate on data centers. The company said the mobile restructuring could save it about $850 million.

Word first surfaced in early July that Lenovo might reorganize its mobile business unit following the appointment last month of company veteran Chen Xudong to run the division and chair Motorola Mobility.

Yang’s steadfast position has been that Motorola will break even in 12 to 18 months and the vendor’s smartphone growth will come from markets outside its native China. Lenovo is aiming for smartphone sales of about 100 million units in its current fiscal year ending March 2016.

For Q1, Lenovo said its smartphone revenue mix has shifted and 65 percent of sales now come from outside China compared to 18 percent a year ago.

Lenovo’s Q4, its first full quarterly period with the product portfolios of Motorola Mobility’s smartphones and IBM’s x86 servers in tow, proved to be a bounty for shipments but slim pickings on profits. The vendor shipped some 18.7 million smartphones in Q4, 7.8 million of which were Motorola, about 10 percent of the 76 million handsets it shipped for the full year 2014.