In a response to market pressures in its desktop business, Lenovo Group Thursday announced it would lay off 1,000 employees and move its corporate headquarters from Purchase, New York, to Raleigh, North Carolina.
In a conference call with reporters, Lenovo President William J. Amelio said that Lenovo's notebook business is strong in developing and emerging markets, but that its desktop business faces severe competitive pressures.
"Lenovo leads the market in innovation. But we still have inefficiencies. We need to bring our expense-to-revenue ratio closer to industry benchmarks, and simplify our organizational structure," Amelio said.
The layoffs represent about 5 percent of the company's 21,400 employees. Lenovo managers will identify the workers by the end of March, spreading the cuts throughout company offices in the Americas, Asia/Pacific and EMEA (Europe, Middle East and Africa) regions.
The changes make sense in terms of the competitive PC market, analysts said.
"Business desktops are a narrow, narrow margin business; they are almost a commodity. You have to be very efficient in order to make money selling desktops," said Gordon Haff, senior analyst with research company Illuminata Inc.
Lenovo faced a challenge achieving that efficiency because they were still struggling to integrate IBM Corp.'s PC division into the rest of the company. Lenovo acquired that business in 2005.
The challenges in merging the two companies also help explain Lenovo's decision to move its headquarters.
"The ThinkPad group has always been located at IBM's Raleigh offices. I'm not sure what their reasoning was in the first place to have a small headquarters of 70 or so people, remote from everything else in the company," Haff said.
Lenovo Chairman Yang Yuanqing also cited integration challenges during a largely downbeat address he made to IBM's partners at the PartnerWorld conference in Las Vegas Wednesday.
Yang commented that Lenovo's international business has only recently begun to turn a profit. He called for further integration of IBM's PC business within his company and for a transformation to "the new Lenovo."
One way he plans to achieve that vision is to diversify Lenovo's product offerings in the U.S. over the long term.
Yang stressed that Lenovo's core international focus for the next two years will be its PC business, with an emphasis on the small to midsize business (SMB) market, which the vendor recently entered along with plans to introduce consumer PCs later this year.
It's not Lenovo's "near-term" intention to introduce other products it offers in China such as servers, phones and printers internationally until "the second half of our five-year plan" running to 2010, Yang said.
In the meantime, Lenovo will roll out further organizational changes over the next six to 12 months, eliminating redundancies in certain departments, Amelio said Thursday.
Lenovo will centralize its desktop team in China as one step toward moving its global supply chain closer to manufacturers and suppliers. And the company will reduce layers in the sales structure.
"Geographical leaders will report directly to me, improving my line of sight to our customers," Amelio said.
Those changes will help the company focus its global strategy on developing high-growth markets such as SMBs and emerging countries, he said.
Amelio cited the company's February launch of its Lenovo 3000 line of laptops and desktops as evidence the company is moving toward its goal of profitable growth.
The 3000 series is a family of low-cost PCs featuring a US$349 desktop PC and a US$599 laptop. Lenovo hopes to steal market share in the U.S. SMB segment now dominated by Dell Inc. and Hewlett-Packard Co.
Lenovo's plan will cost the company US$100 million this year, but will produce annual savings of US$250 million, Amelio promised.
(China Martens contributed to this report)