Consumers' increasing use of smart devices have contributed to
the company's woes.
By Kathy Chu
HONG KONG -- China's Lenovo Group is shaking up its operations
as it seeks to reclaim the title of global leader in personal
computers and shore up its smartphone business.
For the first time in four years, Lenovo -- a company that
gained acclaim a decade ago for turning around storied U.S.
personal-computer maker International Business Machines Corp. --
slipped from the top spot this year to No. 2 in the
personal-computer market, behind rival HP Inc. Lenovo has also
fallen to No. 8 in the number of smartphones shipped globally, from
No. 3 when it acquired another U.S. brand, Motorola, in late
2014.
Lenovo's Hong Kong-listed stock has fallen nearly 60% since the
Motorola acquisition.
Behind Lenovo's woes is a maturing personal-computer market
where demand is slowing as consumers increasingly use smartphones
and other devices for daily activities including checking the
internet. Lenovo also faces fresh challenges from rivals such as
Huawei Technologies Co., which has rolled out its own hybrid laptop
tablets.
In response, the company is restructuring and installing new
management in China to better compete against rivals in a market
known for fierce cost-cutting in both personal computers and mobile
phones.
"The challenges are always there," said Yang Yuanqing, Lenovo's
chief executive, in an interview Thursday. "We don't care what the
market share is today as long as we can grow at a premium to the
market."
Lenovo's back-to-back acquisitions three years ago of Motorola
and IBM's low-end server business were attempts to diversify
Lenovo's operations into faster-growing industries. But these
industries have proved tougher for Lenovo to penetrate than
expected.
Lenovo faces stiff competition from Dell and HP in selling
servers to corporate data centers.
The global smartphone business, meanwhile, is dominated by Apple
Inc. and Samsung Electronics Co. at the premium end, while upstart
competitors have eroded Lenovo's dominance even on more affordable
phones sold in China.
"The market is rapidly changing and Lenovo needs to respond to
market demand," said Tim Bajarin, president of Creative Strategies,
a technology research firm. "They have struggled with these new
acquisitions."
Lenovo said Thursday as it reported fiscal fourth-quarter
earnings that it is seeing positive momentum in its business, with
overall revenue growing again after five quarters of decline. Gross
profits, though, remain challenged, falling nearly 10% in the
latest quarter from a year ago, after a 67% drop in the third
fiscal quarter ended Dec. 31.
Mr. Yang said last week on his Weibo social-media account that
the changes in the China business sought to respond to the world's
fastest changing smart-devices market. Lenovo's business in China
will now be split up into a data center group and a consumer
division for PCs and smart devices, he said.
Lenovo said it was also bringing back Liu Jun, a PC and
mobile-phone veteran.
"We are a company to learn quickly, no matter from success or
failure," Mr. Yang said Thursday. "You have to make adjustments to
make the organization better than before, and to make it stronger
than before."
The restructuring is part of a raft of management changes and
cost-cutting moves Lenovo has made in the past three years to try
to regain its footing.
Lenovo has axed at least 2,000 U.S. jobs since buying Motorola.
The company continues to lose talent because some employees are
unsure about the company's direction, said a handful of insiders,
who declined to be named because they aren't authorized to speak
publicly.
A Lenovo spokesman said that the company's attrition rates are
in line with the industry and Lenovo has been adding new talent,
signs that "morale has improved and that Motorola continues to be a
place where technology-loving employees want to work."
Kitty Fok, IDC's managing director for China, cautioned against
reading too much into Lenovo losing its No. 1 position in the PC
market to HP. The first calendar quarter is traditionally Lenovo's
weakest quarter, so this slide may only be temporary, Ms. Fok
said.
Meanwhile, even though Lenovo's smartphone business is still not
profitable, its global shipments are stabilizing, according to
Strategy Analytics executive director Neil Mawston. Lenovo holds
only a 1% market share in China, but is growing rapidly in India,
where its market share has risen to 9% from 7% in the past year,
according to the research firm.
"For Lenovo at the moment, China is a dark cloud, the U.S. is a
gray cloud, while India is a sunny day," said Mr. Mawston.
The analyst said that if Lenovo can cut costs further and
continue to expand in India, its smartphone business could return
to profitability by 2018.
A former executive says the cost-cutting measures have taken
their toll on company's shrinking resources.
"The company needs time to turn around," said the executive.
"You can't keep fiddling with the business."
A Lenovo spokeswoman said the company is focused on "profitable
growth" through innovation.
Write to Kathy Chu at kathy.chu@wsj.com
(END) Dow Jones Newswires
May 26, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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