Lenovo Cuts 2,500 Jobs

The Lenovo Group has forecast a quarterly loss and will terminate 2,500 jobs in order to cope with falling demand for computers.

Lenovo Group is the world's fourth-biggest PC maker. The company has forecast a quarterly loss as China's slowing economy hit sales. In response to the loss the company will elimnate 2,500 jobs as part of a restructuring to cope with falling demand for computers. Shares in the company slumped by more than a quarter, their biggest fall in 11 years. “Lousy quarterly earnings were widely expected, especially from its major markets overseas, but a faster-than-expected slowdown in the Chinese economy worries investors,” said Conita Hung, head of equity research at Delta Asia Financial. “The market had initially expected the China market to offset part of its bad performance overseas.” Weaker global demand by businesses for personal computers also dented sales as economic slowdown bites. “Although the integration of the IBM PC business for the past three years was a success, our last quarter's performance did not meet our expectations,” chairman Yang Yuanqing said in a statement. The company plans to consolidate its China and Asia Pacific organizations into a single Asia Pacific and Russia (APR) business unit, and will cut executive compensation, including merit pay and long-term incentives, by 30-50 per cent. Dell is planning to cut around 1,900 of 3,000 jobs at its manufacturing plant in Ireland and move many of them to Poland as part of a $3-billion (U.S.) cost-cutting plan announced late last year. For July-September, Lenovo had posted a 78 per cent drop in net profit to $23.44-million. This is teh company's worst performance since it bought the IBM business, and said on Thursday it would report a loss for the October-December quarter. “Although the cost saving plans are seen positive for long term growth, there's no doubt the profit margin will be under pressure,” said Delta Asia's Hung. “As the current environment is much more difficult than before, it is our view that Lenovo needs more aggressive cost control measures,” analysts Jenny Lai and Evonne Weng wrote in a research note for CLSA, which rates Lenovo a sell. The 2,500 jobs, around 11 per cent of the workforce, would be lost in January-March.This will help the company to realize savings of $300-million for the year to end-March 2010. This is their third big round of job cuts since the IBM deal, with 1,000 jobs axed in March 2006 and 1,400 about a year later, according to a company spokeswoman in Hong Kong. Lenovo will also move its call centre operations from Toronto to its main North American site in Morrisville, North Carolina, in a bid to better leverage its investment in real estate and facilities.