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UPDATED: February 10, 2009 NO. 6 FEB. 12, 2009
Lenovo's New Challenge
The world's fourth largest PC maker embarks on a restructuring plan to remain competitive and profitable
By DING WENLEI
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It was the best of times; it was the worst of times. Probably no expression would more accurately describe the coming year for Lenovo Group Ltd., the world's fourth largest personal computer (PC) maker.

 
 

LATERAL THINKING: The high-end brand image of IBM's Think-Pad has prevented Lenovo from pushing into the global consumer and budget PC segments (CFP)

On February 5, the company reported a pre-tax loss of up to $90 million, excluding a $6-million restructuring charge, and a 20-percent year-on-year drop in its consolidated sales in the third fiscal quarter ended December 31, because of plummeting demand for commercial PCs worldwide amid the economic slowdown. The company also announced a series of management changes to effectively deliver its long-term global strategy. Lenovo founder Liu Chuanzhi has returned as chairman, and Yang Yuanqing, the former chairman of the board, returned as CEO to replace William Amelio.

Just a month ago, in a counter-crisis effort, Lenovo announced on January 8 a restructuring plan that included the layoff of 2,500 employees, about 11 percent of its workforce, in the current quarter.

Unlike Lenovo's previous job cuts in 2006 and 2007, which involved 2,400 workers, this round of headcount reduction will include management and executive positions and also affect employees in the finance, human resources and marketing divisions, according to a company statement.

The company also plans to cut executive compensation this year by 30-50 percent, including bonuses, long-term incentives and other performance-based payments. Beijing-based Lenovo expects to save around $300 million by the end of March after the restructuring. But at the same time the reshuffle will result in a cost of $150 million.

"We are taking these actions now to ensure that in an uncertain economy, our business operates as efficiently and effectively as possible and continues to grow in the future," said Lenovo's CEO Yang Yuanqing in a printed statement.

Analysts doubt whether Lenovo's restructuring measures will boost its competitiveness this year. Bryan Ma, an industry analyst at technology research firm IDC, told The Wall Street Journal that Lenovo is "being hit on all sides, whether it's the economy, PC demand, or internally speaking, getting their operations together and developing products."

Winter of despair

Lenovo's global market share shrank to 7.7 percent in the third quarter from 8.2 percent a year earlier, according to IDC. Taiwan-based Acer Inc., Lenovo's big global competitor, has pushed ahead of Lenovo to become the world's third largest PC vender after it acquired Gateway Inc. in 2007. Acer had 12.5 percent of the global PC market in the third quarter of 2008, up from 8 percent a year earlier.

In the domestic market where Lenovo earns more than 40 percent of its total revenue, the company faces increasing competition from Hewlett-Packard (HP) Co. and Dell Inc. In the third quarter of 2008, HP's market share in China reached 11.6 percent, up from 10.4 percent a year earlier, and Dell's stood at 9.3 percent, up from 7.3 percent a year earlier. Lenovo's share increased marginally to 29.4 percent from 29.1 percent, according to IDC.

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