Lenovo Group, the world’s third-biggest PC maker, said on Thursday it will layoff 650 people, mostly in the US and Europe, and move another 750 jobs offshore.
Bill Amelio, Lenovo’s chief executive, said the restructuring was needed to help the Chinese PC maker improve efficiency and boost its growth in key markets. “Our expenses to revenues are still too high compared with our competitors,” he said.
Lenovo, which acquired IBM’s personal computer operations including its ThinkPad laptop business in May 2005, has been struggling to cut costs and return its US operations to profitability in the face of fierce price competition from market leaders Hewlett-Packard and Dell.
The restructuring is expected to save the company about $100m in the current fiscal year which began on April 1. Lenovo added that it will take a pre-tax restructuring charge of $50m to $60m, mostly in the current quarter.
The effects of the restructuring will be felt hardest in Raleigh, North Carolina where roughly 20 per cent of the current jobs will be cut or relocated to emerging markets like China, India and eastern Europe, “closer to Lenovo’s suppliers and manufacturing operations.”
In Europe, Lenovo said it will immediately begin consultations with workforce representatives regarding the plan.
This is the second round of job cuts since Lenovo expanded outside China through the acquisition of the IBM PC unit. In March last year, the company cut 1,000 workers to reduce labor costs by $250m annually.
Since taking over at Lenovo, Mr Amelio has focused on cutting supply chain and other costs while refocusing the company’s sales operations on faster growing segments of the PC market including the ‘transactional’ consumer and small business markets outside China. Traditionally IBM’s operations were focused mainly on the relatively slow growing corporate market.
“There is no doubt we have made strong progress in the past year, but it’s clear we need to further accelerate that progress to be as profitable and cost efficient as the rest of the industry,” said Mr Amelio. “Today’s actions are necessary to enable us to reduce expenses and grow our business.”
“While these actions are difficult, we believe the ‘tipping point’ is within reach,” said Mr Amelio. “If we can combine optimal cost competitiveness and efficient delivery capabilities with innovative, best-engineered products, we can generate more profitable growth, gain market share, and make further reinvestments into the business, fuelling more growth.”