Lenovo cuts jobs, seeks $250 mn in annual savings

Jim Finkle

BOSTON: Lenovo Group Ltd., the world's No. 3 personal computer maker, said on Thursday it will cut about 1,000 jobs, or 5 percent of its work force, to slash costs in its biggest effort yet to reshape the PC unit it bought from IBM.

Lenovo, China's largest PC maker, said the layoffs are part of a six- to 12-month restructuring plan to save $250 million annually in costs, following its $1.25 billion purchase of International Business Machines Corp's PC business including the flagship Thinkpad notebooks in May 2005,

The Chinese company is stepping up competition with market leaders Dell Inc. and Hewlett-Packard Co., and hired industry veteran William Amelio as its chief executive in December to revamp its operations.

Lenovo said in a statement the job cuts will be spread among North America, Asia and Europe, without giving more details. Company officials could not be reached for comment.

"It is still fairly early in the consolidation process. It's not at all surprising that they would find some redundancy and overlap and reduce headcount," said Roger Kay, president of market-research firm Endpoint Technologies.

Lenovo took on about 10,000 former IBM employees when it bought IBM's PC business.

The company said it expects to incur $100 million in restructuring-related charges in its fiscal fourth quarter, which ends on March 31. That's more than double Lenovo's third-quarter net profit of HK$365 million ($47 million).

The annual cost savings target of $250 million compares to about $1.2 billion in operating expenses that Lenovo reported for the first three quarters of its current fiscal year.

Amelio, the former head of Dell's Asian business and a veteran IBM PC executive, is charged with integrating the IBM PC business, which had catapulted to the world stage a company that was founded in Beijing in 1984 by 11 computer scientists with some $25,000 in seed money.

Amelio's experience in Asia may prove an asset because the region has become a trouble-spot for the company. In the December quarter, Lenovo posted a $140 million operating loss in Asian countries outside of the greater China region.

The area has become a hotbed of competition for PC makers in recent years as Dell and Hewlett-Packard have attacked the fast-growing market. That mirrors a global climate in which a handful of companies are looking to keep growing profitably in a climate of falling retail prices.

"The entire industry is under a lot of pressure," Kay said. "Cost cutting is definitely in the cards for everybody." Amelio plans to use savings from the restructuring to fund new efforts to boost global sales.

"We intend to drive a substantial portion of the anticipated run-rate savings into programs that will help Lenovo combat competitive pressures around the world and leverage our new products and brand recognition," he said in a statement.

Expansion efforts include a plan to start selling computers under the Lenovo brand outside of China.

Lenovo announced that strategy last month as it launched its first global marketing campaign in conjunction with a high-profile sponsorship of the Winter Olympics in Torino, Italy.

The restructuring announced on Thursday includes moving some corporate functions from Purchase, New York, to Raleigh, North Carolina, and streamlining sales and support services.

(Additional reporting by Yinka Adegoke in New York and Philipp Gollner in San Francisco)