Lenovo Group, the world’s fourth maker of PCs, has announced a resource redeployment plan that will help the company increase its efficiencies and become more competitive in the face of the continuing global economic downturn. As parts of the re-organization, the company will reduce headcount and combine certain regional businesses in order to cut down costs. However, the company did not announce expected refocus of its operations.
“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. 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,” said Yang Yuanqing, Lenovo’s chairman of the board.
Lenovo expects to reduce the number of its employees worldwide by 2500 during Q1 2009, approximately 11% of its total workforce. This includes management and executive positions. The company is also reducing expenses in support and staff functions, such as finance, human resources, and marketing.
As part of the restructuring, Lenovo is consolidating its China and Asia Pacific organizations, which are currently run as separate business units, into a single business unit – Asia Pacific and Russia (APR). The new organization will help the company reduce its operating expense and eliminate duplicative support and staff functions.
APR will be headed by Chen Shaopeng, currently senior vice president, and president, Greater China. David Miller, senior vice president and president, Asia Pacific, will remain with Lenovo for a transition period.
Lenovo also announced today that the company is relocating its call center operations from Toronto to Morrisville, North Carolina, the company’s main site in North America. This move will enable Lenovo to better leverage its investment in real estate and facilities, and better serve its customers by bringing the call center team closer to its marketing and sales functions.
From these restructuring actions, the company expects to realize savings of approximately $300 million in the 2009/2010 fiscal year (ending March 31, 2010). The company anticipates taking a pre-tax restructuring charge of approximately $150 million, most of which will be taken in the fourth fiscal quarter (ending March 31, 2009). Approximately $24 million of the restructuring charges were booked in Lenovo’s second fiscal quarter (ending September 30, 2008). The company also expects to report a loss for the third fiscal quarter that ended December 31, 2008.
Lenovo also plans to reduce executive compensation by 30 to 50%, including merit pay and long-term incentives, as well as any performance payments for the coming year. These actions in total will help take advantage of Lenovo’s strengths as a global organization to better align its resources with shifting customer demands in the current marketplace.
Additionally, Scott DiValerio, senior vice president and president, Americas, who has led the Americas Group sales organization for the past year, will be leaving the company. The Americas Group will now report to Rory Read, senior vice president, operations, as part of Lenovo’s streamlining efforts
“The actions we are taking today are not easy, and we will act with compassion and respect for the individuals in our company who are most affected,” said William J. Amelio, Lenovo’s president and chief executive officer. “As hard as this news is for all of our Lenovo employees, we believe the steps we are taking today are necessary for Lenovo to compete in today’s economy, and in the long run, will help us to continue to deliver exceptionally engineered PCs to our customers worldwide.”