With low PC sales, Lenovo faces its toughest challenge yet

Aug 13, 2015 12:07 GMT  ·  By

In a bid to increase efficiency and streamline its PC and mobile production, Lenovo has officially announced a 5% headcount cut, which represents about 10% of its non-manufacturing workforce.

Apparently, in an email sent by Yuanqing Yang to employees, Lenovo's Chairman and CEO emphasizes the need to become more efficient and to sustain growth in a declining PC market, as well as to reduce expenses in order to maintain a profitable and healthy business.

Also in the mail sent by Lenovo’s CEO, it is mentioned that the company needs to restructure its smartphone development, manufacturing and production in order to bring cleaner and more clearly differentiated models, while giving Motorola the responsibility to design, develop and manufacture smartphone products.

With this new efficiency target in mind, Lenovo plans to accelerate efforts to reach 30 percent share in PC sales from the current 20.6 per cent, with cost reduction and increased overall efficiency in order to adjust to market changes faster and become more consumer-centric.

The harsh Chinese economic environment hits big companies first

It seems that this effort will reduce expenses by about $650 million (584 million) in the second half of this year and about $1.35 billion (1.2 billion) on an annual basis.

The company did report first quarter revenue of $10.7 billion (9.6 million), which represents an increase of three percent when compared to one year ago, but unfortunately, profit dropped 51% to $105 million. Besides the aforementioned declining PC market that affects pretty much everybody in the IT industry, the company also faces severe challenges overseas, but mostly in China, where consumers seem to turn more to the mobile market and have higher expectations from the products they buy.

As we mentioned in a previous article, the improved lifestyle of the Chinese prompts its youth to expect better quality products at higher prices and sustain a much more potent mobile market where Apple is king.

The PC environment is extremely volatile at the moment, and many hope that after the launch of Intel's Skylake and Microsoft's Windows 10, the IT business will settle a bit and will be back on growth as per usual.

You can read ​Yuanqing Yang's public letter to employees below.

Lenovo CEO Email To Employees