Lenovo is contemplating job cuts as part of a roughly $115 million cost-cutting initiative in response to a precipitous plunge in sales and profits for the IT giant’s PC business, among other market shifts.
The Hong Kong-based company disclosed the plan Friday in its third-quarter earnings call, in which CEO Yang Yuanqing said a “severe downturn” in the PC and smartphone markets contributed to Lenovo’s revenue declining 24 percent year-over-year to $15.3 billion for the period, which ended in December. The company’s net income took an even deeper dive, by 32 percent, to $437 million.
Lenovo had about 75,000 employees at the end of its 2022 fiscal year.
The company’s stock price was down 3 percent on Friday.
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Yang noted that while Lenovo is experiencing the same sales crunch felt by competitors, he believes the PC market “might stabilize sooner than many expect.” The expectation is that PC sales will end up growing at a faster rate compared to 2019, before the COVID-19 pandemic prompted an unprecedented IT spending spree and historical shortages in devices and components.
“While the PC market still needs some time to digest the inventory to a healthier level, we believe total shipments are likely to stabilize at a higher than pre-pandemic level as early as the second half of this year,” Yang said.
However, Lenovo CFO Wong Wai Ming said the company is still facing a “confluence of global economic challenges and dynamic shifts in market demand.” These factors, combined with the IT giant’s hope of doubling its net margin in the next few years, are pushing the company to invest in “high-margin growth engines” and “reduce runway operational expenses by approximately $115 million,” he added.
This cost-cutting plan includes “workforce adjustment where necessary and appropriate” Wong said.
How Lenovo’s Businesses Performed In Q3
The Intelligent Devices Group, which includes Lenovo’s PCs and smart devices, saw revenue decline 34.2 percent year-over-year to $11.8 billion and operating profit drop 37.3 percent to $848 million in the third quarter. Despite this, the company said it continued to lead the industry in market share, in profitability and in gross margin, which was 7.3 percent for the period.
Lenovo’s two other business units, on the other hand, grew in the double digits and helped contribute to non-PC sales representing more than 40 percent of total revenue in the third quarter, Yang said.
Revenue grew 48 percent year-over-year to a record high of $2.9 billion for the Infrastructure Solutions Group, which includes Lenovo’s servers. Operating profit more than doubled to an all-time high of $43 million. The company said server growth reached a new record of 35 percent while storage growth more than triple and software growth grew by 52 percent, which were also all-time highs.
The Solutions and Services Group, which includes Lenovo’s TruScale as-a-service offering, grew 23 percent year-over-year to $1.8 billion while operating profit increased 12 percent to $370 million in the third quarter. Managed services sales nearly doubled from the same period last year, driven by TruScale and leading non-hardware solutions to account for a record 53 percent of total group revenue.
“Our diversified growth engines are firing up. Our operational resilience is supporting the results. Our healthy liquidity is ensuring the sum needs of the company. And our investment in new IP is building the next wave of our competitive advantages,” Yang said.
Dylan Martin is a senior editor at CRN covering the semiconductor, PC, mobile device, and IoT beats. He has distinguished his coverage of the semiconductor industry thanks to insightful interviews with CEOs and top executives; scoops and exclusives about product, strategy and personnel changes; and analyses that dig into the why behind the news. He can be reached at [email protected].
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