Lenovo cuts 5 percent of workforce

In a continuing search for profits, Lenovo Group Ltd. said Thursday that it plans to lay off 1,400 workers, about 5 percent of its global workforce.

The news comes just a day after analysts said Lenovo fell to fourth place in the PC industry, with less market share for first quarter PC shipments than Hewlett-Packard Co., Dell Inc. and Acer Inc., according to Gartner Inc.

Lenovo made cuts in an effort to grow faster than its competitors in the PC vendor industry, and increase its profits by reducing expenses, CEO William Amelio said in a statement. Overall, Lenovo expects to save US$100 million, although it will also incur a $50 million to $60 million restructuring charge.

In another change, Lenovo will replace some of those employees by creating 750 new jobs in emerging markets closer to the company's suppliers and manufacturing centers. Those jobs will be in the company's supply chain and software testing divisions, and will be located primarily in Brazil, India, and Bratislava, Slovakia, with a small number in China, said Lenovo Spokesman Ray Gorman in an interview.

Those jobs will not be direct replacements for the lost workers, he said. Some of the 1,400 layoffs will also be in the supply chain segment but the rest will span all the divisions in Lenovo's workforce of 24,500. Lenovo is notifying affected employees Thursday, with plans to lay off workers in U.S. locations such as Raleigh, North Carolina, within 30 to 45 days, and the rest over the coming 12 months.

Although Lenovo will cut expenses, the company also wants to preserve productivity, which reached a high point in the first quarter. With a rise of 16.1 percent in the number of PC units shipped, Lenovo posted its best year-over-year growth rate since acquiring IBM Corp.'s PC division in May 2005, Gartner said.

The problem was that Lenovo's success did not hold up to HP's 28.7 percent rise and Acer's 46.1 percent increase in the same period.

"We've made a lot of progress, no question," Gorman said. "But our competitors are more cost-effective and operating more efficiently worldwide. So we need to reduce our expense-to-revenue ratio and bring it in line with the rest of the industry."

The IDG News Service is a Network World affiliate.