Lenovo's mobile phone division suffers huge loss of 1.8 billion yuan and lays off employees to face the cold winter
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On August 13, Lenovo Group (HKSE: 992) announced its first quarter results for the 2015/2016 fiscal year ending June 30, 2015. The financial report data showed that Lenovo Group's turnover in the quarter was US$10.7 billion, a year-on-year increase of 3%, and its net profit fell 51% year-on-year to US$105 million. This time, in addition to other business and market factors, Motorola became the "culprit" for Lenovo's performance decline. Therefore, Lenovo also made the decision to lay off employees at Motorola headquarters. Lenovo Group Chairman and CEO Yang Yuanqing said that the market challenges Lenovo is facing now are no less severe than in 2008. For Lenovo, perhaps the only solution is to cut spending and prepare for the cold winter. Mobile services need improvement In October 2014, Lenovo officially completed the acquisition of Motorola Mobility from Google for approximately US$2.91 billion. Lenovo then became the world's third largest smartphone manufacturer. However, judging from the current financial report, this acquisition did not bring any improvement to Lenovo's accounts, but instead dragged down Lenovo. The financial report shows that Lenovo's mobile phone division suffered a pre-tax loss of US$292 million (about RMB 1.86 billion) in the first quarter, while its brand branch Motorola shipped 5.9 million mobile phones, a 31% decrease from the same period last year. Lenovo's losses were mainly due to Motorola's mobile phone business. Yang Yuanqing said that the serious losses of Lenovo's mobile phone department were mainly caused by Motorola. There are several main reasons affecting Motorola's performance. First, the Latin American market is affected by the macro-economy; second, the product life cycle is too long and lacks competitiveness at the end of the life cycle, affecting sales in North America and India; third, the cost structure is a drag when the market cannot grow. In order to improve its financial situation, Lenovo announced that it would lay off 3,200 employees worldwide, and Motorola Mobility, a subsidiary of the company, will account for 500 of the layoffs. Motorola Mobility spokesman William Moss said that the layoffs will officially start from now on and will continue for the next few weeks. "Motorola Mobility will simplify all levels to reduce company expenses," he revealed, and Chicago will continue to be the headquarters of Motorola Mobility in the future, and will also be the company's global R&D and design center. "Through this restructuring, our business situation will be greatly improved, and we can save $850 million a year." Yang Yuanqing said that part of the $850 million saved will be used for reinvestment, and part can be used to improve profitability. "In the future, Lenovo and Motorola will be fully integrated, and there will be no distinction between Motorola's performance and LENOVO's performance, so our goal is to turn the entire MBG from loss to profit in two to three quarters." Yang Yuanqing told the media. Sun Yongjie, a senior IT industry analyst, told the 21st Century Business Herald that Lenovo and Motorola need a transition period or consolidation period for integration, and only two quarters have passed. "When Lenovo acquired IBM's personal computer business, it took less than a year to integrate it, and it also faced financial losses." Sun Yongjie said that next, Lenovo needs to consider how to position its four mobile phone brands and how to adjust its strategy. The challenge lies in mobile business In fact, after Chen Xudong becomes the head of the mobile business, Lenovo will have four mobile phone brands, including: Lenovo, Moto, Lemon and ZUK. Sun Yongjie said that after the acquisition of Motorola, Lenovo's influence in overseas markets has increased. For example, in emerging markets such as India, Motorola has a higher brand recognition. "The biggest challenge for Lenovo mobile phones at present is how to differentiate its four brands." Sun Yongjie said that Lenovo has entered a consolidation period, and the decisive factor in the future is how to shorten the consolidation period and quickly get back on track. Otherwise, the mobile phone market industry is changing rapidly, and it will pay a price if it fails to keep up with the pace. In fact, apart from mobile phones, what Lenovo Group is facing this time may be one of the most severe challenges since its establishment. According to the financial report, Lenovo Group's PC business revenue fell 13% year-on-year to US$7.282 billion. Excluding the impact of exchange rates, revenue decreased by 5% compared with the same period last year. Yang Yuanqing admitted that in 2008, the PC market was still growing and had not declined that much. "Lenovo's main business was the enterprise business, but the consumer market was still very healthy." Yang Yuanqing told reporters that the entire PC market declined by 13% this quarter, and Lenovo's new business has not yet gained a firm foothold when it encounters greater challenges, so it will be more severe. However, Lenovo is fortunate that its PC business remains strong despite the continued downturn in the global PC market. In addition to a record high market share of 20.6%, further widening the gap with the second place, its pre-tax profit margin reached 5.1%, up 0.3 percentage points year-on-year. Yang Yuanqing still seems optimistic. He said Lenovo's response is stronger and better than in 2008. "In 2008, Lenovo only had the PC business. In that market environment, it lost more than 200 million yuan, but now it has not only made no loss, but has actually improved its profit margin." The enterprise business is also improving relatively. After incorporating IBM's System x business, the business's turnover reached $1.1 billion, up 5.8 times year-on-year. Although it is still in a loss-making state, its loss has narrowed compared with the previous quarter (a loss of $40 million in this fiscal quarter and a loss of $45 million in the previous fiscal quarter). So the enterprise business is generally developing in a favorable direction. However, Lenovo is at a critical juncture. After two consecutive quarters of sharp declines in profits and major adjustments in its mobile business, Lenovo has already resorted to layoffs and restructuring. Whether it will rise again or continue to decline depends on the next quarter's financial report, especially its mobile business, which has taken great pains. As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity. |
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