Poor smartphone sales cause Lenovo, HTC job cuts

Smartphone manufacturers are facing a slump, that much is true. The same thing is taking place even for low-cost handset makers. In fact, HTC and Lenovo have recently confirmed they would lay off workers as part of different restructuring plans in the face of slowing handset sales.

Earlier this month, Taiwan-based HTC posted a Q2 loss of $252 million against revenues of just over $1 billion. HTC sells its own smartphones and also makes handsets for a number of leading US companies, including Google's Nexus One.

However, lower sales in China, coupled with competition from the likes of Apple's iPhone and Samsung, have played havoc with HTC's plans. Although known for lower-end handsets, the company has tried to branch out into the higher-end market, one that is dominated by the iPhone.

With this as the backdrop, HTC announced Thursday that it will cut 15 per cent of its workforce and slash operating expenses by more than a third. This translates to about 2,250 people cut by the end of this year.

HTC management remained publicly optimistic.

"While the current market climate is challenging, I firmly believe the measures we are putting in place to streamline our operations, improve efficiency and focus, and increase our momentum will start to show results over the coming quarters," according to HTC CEO Cher Wang.

Wang was appointed CEO in March of this year, and had previously been served at as chair of HTC's board of directors.

HTC also said that it continues to invest in new product areas such as virtual reality, where it is working with over a thousand developers on content ahead of the launch of HTC Vive at the end of the year.

There are an equal number of problems at Lenovo, which is facing pressure in the smartphone market, as well as with slow sales of PCs.

The Chinese manufacturer is highly involved in the mobile market, having paid $5 billion for Motorola in 2014.

Lenovo appears to be feeling the hangover from that now.

According to the company's financial results for its fiscal Q1, Lenovo reported a 51 per cent slump. Net profits for the quarter totalled $105 million compared to the $214 million Lenovo posted during the same quarter last year.

Slow growth in China

Besides woes in the computer market, company executives noted a "slowing growth and increasing competition, especially in China, in smartphones."

The Chinese smartphone market has been saturated. In fact, some segments of the market have contracted about four per cent, according to government statistics.

Lenovo also outlined in that announcement what actions that it will be taking in the future. This will include slashing about 10 per cent of its non-manufacturing jobs, or about 3,200 employees. That equals about five per cent of its total workforce.

The company will also incur restructuring costs of about $600 million and additional spending to clear smartphone inventory of nearly $300 million.

"Restructure the Mobile Business Group (MBG) to align smartphone development, production and manufacturing and better leverage the complementary strengths of Lenovo and Motorola," according to the company. "There will be a more-simple, streamlined product portfolio, with fewer, more clearly-differentiated models...MBG will continue to drive the overall mobile business, but will now rely on Motorola to design, develop and manufacture smartphone products."