Lenovo may cut costs with layoffs
Reuters
Published: 28 Feb 2007
Lenovo has approved a preliminary plan to slash more than 1,000
jobs to cut costs as price competition in the PC market remains
intense, a source close to the company said on Tuesday.
The job cuts would fall mostly in the US the
majority would be layoffs, while some workers would be redeployed.
But some of the restructuring would also take place in China, the
source said.
A representative of Lenovo, the world's number-three PC maker,
would not confirm or deny the comments. The move would cost between
$50m and $75m in what is known as a one-off write-off, the source
said.
Lenovo hopes the plan will save it between $150m and $175m annually
in a move that comes about a year after a similar plan to lay off
1,000 workers was announced.
"The job cuts, especially in China, indicate that the price
pressures are more intense than originally thought," said
Mark Po, a computer industry analyst with UOB Kay Hian in Hong
Kong.
Last March, the company said it would cut about 5 percent of its
work force to slash costs in an effort to reshape the PC unit it
bought from IBM. The new plan indicates the company did not achieve
the cost savings that it had originally anticipated, the source
said.
Lenovo, China's largest PC maker, has said last year's layoffs were
part of a six- to 12-month plan to save $250m annually in costs,
following its $1.25bn purchase of the IBM PC business in May
2005.
The Chinese company is stepping up competition with market leaders
Dell and HP.
Lenovo posted a 23 percent gain in profits in the December quarter,
its best showing since it bought IBM's loss-making PC arm, as it
held costs down. However, revenues were flat, indicating the
company was not making inroads into key markets such the US and
Japan, where shipments declined.
Lenovo has competed aggressively on price with rivals, but any
gains in market share have been eroded by falling unit prices, say
analysts. Lenovo had hoped the purchase of the struggling IBM unit
would bring in the notebook computer technology it needed to
compete in the highly competitive sector. However, the company has
not been able to convince enough corporate clients that the new
Thinkpad notebooks were still IBM computers and not just Lenovos
with a new logo attached, the source said.