Daily Management Review

Motorola Woes Half Lenovo's Net Profits, 10% Job Cuts Announced


08/13/2015




Motorola Woes Half Lenovo's Net Profits, 10% Job Cuts Announced
With first quarter year-on-year net profits plunging 51 percent despite the revenues rising by 5 percent, China's Lenovo Group Ltd announced it will lay off 10 percent of its white-collar staff on Thursday.  The total loss of jobs is expected to be around 3,200. The results were below the expected results for the computer maker.

The fall performance is said to be a dramatic fall, more than one third, in the sale of Motorola handsets. Lenovo had bought the loss making mobile handset company Motorola for $3 billion with the hopes that the computer maker would be able to make it big in the mobile handset market and become a global player n smartphones.  

There was 9 percent slip in the share values of the world's biggest maker of PCs on Thursday after it the announcement of the second quarter results.

The net profits of the quarter ended June for the company dropped to $105m (£67m) while revenues reached $10.7bn but both were below forecasts.
 
According to analysts polled by Thomson Reuters SmartEstimates, Lenovo was expected to generate revenues of $11.29 billion while the net profit was estimated to fall by 5 percent.
 
Lenovo’s reaction to the results was: it was facing the "toughest market environment for years" especially in its mobile sale division.

The primary reason for the quarterly net profit being halved was a loss of nearly $300 million by its mobile division.

This prompted the company to announce lay-off for about 3,200 non-manufacturing jobs with a one-time cost of $600 million.

On the annual basis, this restructuring for the Beijing-based company, would help Lenovo to save up to about $1.35 billion. The “toughest market environment in recent years",  as described by company’s Chief Executive, Yang Yuanqing comprised of two major factors - the difficulty in selling handsets and the continuously shrinking global market for PCs.

“I still believe mobile is a new business we must win," Yang told the media on Thursday saying Lenovo's ambition to rival Apple Inc and Samsung Electronics Co in smartphones it still unchanged.

"I still believe this acquisition (Motorola) was the right decision...Except Apple and Samsung there is no third strong (global) player. I believe that will be Lenovo," Yang said.

Lenovo had bought Motorola, bought from Google Inc in 2014 for $2.91 billion. The Motorola division of the company managed to ship 5.9 million handsets in the first quarter of the current fiscal which was a 31 percent less than the same figures in the same period a year ago.

The handsets did poor business in Brazil and China. In china, there is a virtual price war for smartphones as international companies like Samsung Electronics and domestic startup like Xiaomi Inc have struggled to make it big in the first quarter. Lenovo is setting a strategy to prioritize marketing of smartphones outside China.  

In the early part of the day’s trading in the Chinese markets, the company’s shares hit their lowest level since late February 2014.

Reacting to the very recent depreciation of the yuan, company’s Chief Financial Officer Wong Waiming said that it would have "no significant implication to our cost of borrowing".

(Source: www.reuters.com & www.bbc.com)






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