Lenovo Renews Focus on China Amid Tumbling Global Sales

Hit by $97M Loss in Q4, Cost-Cutting Measures Lead to Exit of CEO Bill Amelio

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Lenovo's pavilion at the 2008 Olympic Games in Beijing
Lenovo's pavilion at the 2008 Olympic Games in Beijing Credit: George P. Johnson agency
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BEIJING (AdAgeChina.com) -- In the face of falling sales, Lenovo Group will lay off 2,500 staff worldwide during the first quarter of this year, about 11% of its total workforce.

In a surprising move, the ax started at the top. Yang Yuanqing, 44, Lenovo's chairman of the board, has replaced Bill Amelio, 51, as CEO. Liu Chuanzhi, 64, will return as chairman. Both Chinese executives are based in Beijing.

Lenovo recently announced a $97 million loss for the fourth quarter of 2008, compared with a $172 million profit for 2007. Sales for the quarter ending December 2008 dropped 20%, to $3.6 billion from $4.5 billion.

The Raleigh, North Carolina-based company, which makes computers, mobile phones and other electronic devices, has been strongly affected by the global recession.

The loss, the company's first in three years, since China's largest PC company acquired IBM's personal computing division in 2005, was caused largely by falling corporate sales in the U.S. and Europe. Both markets have been hard hit by the economic downturn.

The decision to return Mr. Yang, a computer scientist who joined Lenovo 25 years ago when it was called Legend Computers, and Mr. Liu, the company's founder, to more active roles in the company follows Lenovo's decision to renew its focus on China's still-growing economy.

"Lenovo has grown successfully on the international stage," Mr. Liu said in a statement. "But at this important time we want to pay particular attention to our China business as it represents the foundation of our global business and growth strategy."

Despite an aggressive marketing program created by Ogilvy & Mather, JWT and Dentsu and significant investment in a global sponsorship deal for the 2008 Olympic Games, Lenovo's ambitious attempt to build one of China's leading global brands has not succeeded.

Lenovo was the world's third-largest PC maker after the IBM acquisition, behind Hewlett-Packard and Dell. Last year, it fell to fourth place when arch-rival Acer, a Taiwanese company, took the No. 3 spot.

Acer, less reliant than Lenovo on corporate sales, is catching up to Dell. Acer's market share reached almost 12% in the fourth quarter according to IDC, partly because of strong sales for its popular mini-laptop products. Lenovo's market share slipped to 7.3%.

Despite Lenovo's precarious situation, Mr. Amelio said in a statement, "I'm pleased with what we have accomplished as a team," adding that he will remain at Lenovo "in an advisory capacity" until September 2009.

"Last quarter's performance did not meet our expectations," said Lenovo CEO Yang Yuanqing.
The company is also cutting expenses in support and staff functions, such as finance, human resources, and marketing, and plans to slash executive compensation by 30% to 50%, including merit pay and long-term incentives, as well as any performance payments for this year.

"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," Mr. Yang said in a statement.

"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."

As part of the restructuring, Lenovo is consolidating its China and Asia/Pacific organizations, currently run as separate business units, into a single division called Asia/Pacific and Russia and headed by Chen Shaopeng, currently senior VP, and president, Greater China.

David Miller, senior VP and president, Asia/Pacific, will remain with Lenovo for a transition period of unspecified length. Scott DiValerio, senior VP and president of the Americas region, where total shipments fell 6% in the last quarter, has left the company.

Through restructuring actions, the company expects to save $300 million in the next fiscal year ending March 31, 2010.

Lenovo's Olympic connection couldn't prevent the company from posting a $97 million loss in the fourth quarter of 2008
Lenovo's Olympic connection couldn't prevent the company from posting a $97 million loss in the fourth quarter of 2008
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