Hard hit by plunge in Motorola sales, Lenovo to slash 10% workforce

Chinese major Lenovo Group Ltd (0992.HK) has decided to trim its headcount by 10 percent as it suffered severely from the steep drop in sales of Motorola handsets. Last year only, Lenovo acquired Motorola from Google for $2.91billion.

The Motorola handset sales dropped by one-third forcing Lenovo to slash 3,200 non-manufacturing jobs with one time cost of $600million. The stock of the world's largest manufacturer of PCs fell about nine percent on Thursday (13 August) after its quarterly net profit dipped by almost 50% as mobile division lost $300million. The Lenovo shares dropped to the lowest since February 2014. 

The Beijing-based Lenovo Group has acquired Motorola with an objective of becoming a leader in the world Smartphone market.  However, in less than a year after the acquisition, it has turned out to be a bitter experience for Lenovo, which has already taken up restructuring plan and hopes to save $1.35billion yearly.

The shrinking global market for PCs coupled with tough competition in the Smartphone segment has become a major challenge for Lenovo. 

The company's chief executive Yang Yuanqing is optimistic about the future course of company's performance. "I still believe mobile is a new business we must win," he said in an interview with Reuters.

Motorola shipped 5.9million handsets during the quarter and this was 31% drop from previous sales volume. Attributing this drop in sales to poor performance in Brazil and China, Yuanqing said Lenovo would prioritize the markets for Smartphone sales globally. 

Lenovo Group, with an objective of competing with global leaders Apple and Samsung in Smartphone segment, has bought out Motorola. Lenovo was expecting the acquisition would enable it to gain a larger foothold in the US and other developed markets.

"I still believe this acquisition (Motorola) was the right decision. Except Apple and Samsung, there's no third player and I believe that will be Lenovo," adds Yuanqing.

Missing the analysts' forecast of $11.29billion, the quarterly revenues grew three percent to $10.7billion. Net profit fell 51% to $105million. It was better than expected as analysts predicted the net profit drop would be 59% during the quarter. 

The depreciation of Chinese currency Yuan wouldn't impact Lenovo and its cost of borrowings as the company uses US dollar in operations. Company's Chief Financial Officer Wong Waiming said that the company was hedged very well and gross margins would also be unaffected with the Chinese currency depreciation. 

Market analysts also appreciate Lenovo for immediately reacting to the stock slide, quarterly results and drop in Motorola sales. Lenovo's timely announcement of cost reductions and inventory write-off has prevented the share price from further fall.