Lenovo cutting 230 jobs in Triangle as profits fall

Lenovo has announced a round of job cuts. Workers walk past a Lenovo sign in this 2007 file photo.
Lenovo has announced a round of job cuts. Workers walk past a Lenovo sign in this 2007 file photo. Travis Long

No. 1 PC maker Lenovo is laying off 230 white-collar workers in the Triangle as part of a broader cost-cutting effort triggered by a tough sales environment and the faltering performance of the Motorola smartphone business it acquired last year.

Overall, the company is laying off 3,200 white-collar workers worldwide – about 5 percent of its workforce, or 10 percent of its non-manufacturing employees. The local job cuts account for about 7 percent of the company’s Triangle workforce of 3,000-plus.

“Employees are being notified starting now,” company spokesman Ray Gorman said in an e-mail message Thursday. Lenovo is based in China but has a headquarters in Morrisville. It has about 60,000 workers globally.

Lenovo said the layoffs were the result of disappointing financial results and were part of a cost-cutting initiative that would reduce annual expenses by about $1.35 billion.

The company reported that in its fiscal first quarter that ended June 30, net income fell 51 percent to $105 million while revenue totaled $10.7 billion, up 3 percent.

Lenovo has been accustomed to much more robust financial results. In the immediately preceding quarter, for example, revenue rose 21 percent – and would have risen 28 percent if not for currency fluctuations.

In the latest quarter, Lenovo’s shipments of PCs, which account for two-thirds of total revenue, and tablets actually outpaced its major competitors and the overall market. However, the markets for both devices shrank due to slack demand.

In an email to employees, CEO Yuanqing Yang said the company was moving decisively to strengthen its operations.

“We do not make these moves lightly,” he wrote of the job cuts. “I know how hard our people work. But we must ensure our long-term success and ability to meet our goals and commitments.”

Earlier this year, Lenovo laid off 235 employees nationwide, including 165 workers in the Triangle. A majority of those who lost their jobs were former IBM employees that Lenovo absorbed when it acquired a line of servers from the technology giant.

About $850 million of the annual savings Lenovo expects to reap will come from the struggling Motorola business. Yang told analysts during a conference call that the Motorola business suffers from: a high cost structure; a long product-development cycle that renders its products uncompetitive at the end of the cycle; and a lackluster economy in Latin America, which accounts for half of Motorola’s sales.

Shipments of Motorola smartphones tumbled 31 percent from a year ago.

“The restructuring is indicative that they are lowering their overall expectations” for the smartphone business, Alberto Moel, an analyst at Sanford C. Bernstein, told Bloomberg News. “They’re obviously serious about keeping their financial and operating targets, and are willing to take very aggressive actions to get there.”

Lenovo also unveiled a new corporate realignment that calls for improved integration of the Lenovo and Motorola smartphone businesses and offers “a more simple, streamlined product portfolio, with fewer, more clearly differentiated models,” the company said.

The company’s PC sales fell 13 percent in the latest quarter to $7.3 billion even as it reached a record worldwide market share of more than 20 percent. Excluding currency fluctuations, revenue fell 5 percent.

Sales of mobile products, including mobile phones and tablets, rose 33 percent to $2.1 billion. However, Motorola sales, which weren’t part of the year-ago results, accounted for $1.2 billion in revenue.

Lenovo’s mobile business posted a pre-tax loss of $292 million. The Motorola business was losing money when Lenovo acquired it.

Lenovo’s stock-like American depositary receipts fell 9 percent on Thursday, closing at $19.75.

David Ranii: 919-829-4877, @dranii