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Shake up in cellphone industry spells job losses

Posted: 14 Aug 2015 ?? ?Print Version ?Bookmark and Share

Keywords:job cuts? Lenovo? HTC? restructuring? mobile?

When Lenovo bought Motorola from Google last October for $2.9 billion, they probably didn't plan on slashing thousands of jobs a year later. Or did they?

Lenovo recently announced that they are cutting 3,200 jobs. That's 10% of their non-manufacturing workforce or 5% of their overall staff. Their CEO Yang Yuanqing reportedly sent around an email informing staff of the need to streamline in a declining PC market and hence the need to restructure mobile and enterprise businesses for growth. As it turns out restructuring was the usual euphemism to start laying-off staff among other things.

In his statement Yang spelled out the broad direction of his strategy. He wants to better leverage the complementary strengths of Lenovo and Motorola and that he wants a streamlined product portfolio with a reduced number of clearly differentiated models. Yang also wants to grow Lenovo's PC market share from 20.6% to 30%, while cutting costs.

What likely triggered this move has been widely reported: Lenovo reported a Q1 revenue of $10.7 billion, which was up 3% from a year ago, but profit dropped by 51% to $105 million! The company's mobile division recorded a pre-tax loss of $292 million in the three months ending June. Motorola's contribution to Lenovo's smartphone shipments has fallen by 31% from a year earlier to 5.9 million units. Not surprisingly, Lenovo's shares are down 8.7% over late February 2014.

The recent devaluation of the Chinese yuan is not expected to have considerable effect on their cost of borrowing, according to their CFO Wong Waiming, but it can't be bad for a company with a large manufacturing presence in China and exporting worldwide.

In any case, Lenovo is not alone in this mess. Over across the straits, Taiwan's HTC Corp. announced yesterday that it cut trim 15% of its workforce. HTC employed about 15,685 people in Q1, so the announced job cuts will likely number about 2,000.

HTC said this move will help it cut operating expenses by as much as 35% and has warned that cost reductions will continue into next year. In recent years, HTC has been beaten back by Apple and Samsung for market share and the company is still looking for a product that will turn around its fortune. Yesterday, its share price fell by 7.82%.

In a press release, HTC CEO said, "Now, as we diversify beyond smartphones, we need a flexible and dynamic organisation to ensure we can take advantage of all of the exciting opportunities in the connected lifestyle space. This strategic realignment of our business will ensure that each product group has the right focus, the right resources and the right expertise to win new markets."

Apart from the realignment starting with layoffs, the only hint we get of the strategy is that HTC will try its hand at products other than smartphones. It recently introduced a rather odd looking RE camera that looks like my inhaler (you can see it here; I mean the camera).

With new players, like Xiaomi, Huawei and others, nipping at market shares, is the mobile phone industry up for exploring new markets or is it merely consolidating? Let us know what you think in the comments below.

- Vivek Nanda

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