Lenovo, HTC Slash Jobs As Smartphone Market Shifts - InformationWeek

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IoT
IoT
Mobile // Mobile Devices
Commentary
8/13/2015
03:15 PM
Larry Loeb
Larry Loeb
Commentary
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Lenovo, HTC Slash Jobs As Smartphone Market Shifts

Facing pressure and competition in the global smartphone market, Lenovo and HTC each announced layoffs as part of different restructuring plans.

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The smartphone business is not going very well for manufacturers, even those associated with low-cost handsets. This week, HTC and Lenovo 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 second-quarter 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% 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.

(Image: Images_By_Kenny/iStockphoto)

(Image: Images_By_Kenny/iStockphoto)

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," HTC CEO Cher Wang wrote in a prepared statement released Aug. 13.

Wang was appointed CEO in March of this year, and had previously been served at as chairman 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 first quarter, Lenovo reported a 51% slump. Net profits for the quarter totaled $105 million compared to the $214 million Lenovo posted during the same quarter last year.

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 4%, according to government statistics.

[Read about Lenovo's new ThinkPad laptops.]

Lenovo also outlined in that announcement what actions that it will be taking in the future. This will include slashing about 10% of its non-manufacturing jobs, or about 3,200 employees. That equals about 5% of its total workforce.

The company will also incur restructuring costs of approximately $600 million and additional spending to clear smartphone inventory of approximately $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's Aug. 13 statement. "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."

Larry Loeb has written for many of the last century's major "dead tree" computer magazines, having been, among other things, a consulting editor for BYTE magazine and senior editor for the launch of WebWeek. He has written a book on the Secure Electronic Transaction Internet ... View Full Bio
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larryloeb
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larryloeb,
User Rank: Author
8/16/2015 | 11:07:25 AM
Re: You should know better.
Carrier subs (and the 2 year plans that they require) are going away. If Verizon is bailing on them, everyone else follows. I'm not sure that the subs forced handset adoption or that they were just a reflection of customer demand.

That means the real price of a phone will be paid as a line item, not buried in the agreement.

Marketing means giving people reasons to use your product. It doesn't have to cost billions. Remember that many are still happy with "feature" phones that just connect to the phone network. The marketing out there still doesn't give them a reason to change.

Tablets have been a strange mix of phone and computer. Yes, I think they will become cheaper as they mature.
realjjj
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realjjj,
User Rank: Apprentice
8/15/2015 | 10:55:12 PM
Re: You should know better.
Not quite and does it get away with it if they keep losing share? Apple gets away with it on marketing, that's the only genius thing ( ignoring the ethics) about Apple. The American press being caught up in the marketing magic, not being informed and/or lacking ethics (Apple is the Paris Hilton of tech, or w/e more current celebrity you might be aware of), makes things a lot easier for them. Carrier subs also helped Apple in a huge way, it made pricing almost irelvant and made the marketing fundamental. An iphone is 60% marketing. Subs favored Samsung and Apple in the US and killed everybody else. You can make a better device for 3 times less (full retail) but you can't sell it if you don't have at least a few billions for marketing.

The ecosystem is also a vulnerability. If you look outside the markets where Apple has big share, there isn't much of a reason for apps devs to make sure they address iOS. Having 1 store for apps keeps prices up too. Locked down software allows for far fewer types of apps. Android has it's own problems, from carriers adding bloat and delaying updates, to designing devices on BOM , focusing on the wrong features  and a lot more but getting into all that is a very long conversation.

The tablet market on the other hand is quite a bit different. Apple has been a lot more aggressive with pricing while almost everybody else is just giving up. The ipad mini gen 2 is almost not bad value and Apple never had such products. If the mini gen 2 gets a new price cut in a few month (from 299$ to,,,, maybe 250$ , could be discontinued too, we'll see), it would be rather good value that others are failing to match. A very strange place for Apple to be in, an anomaly.

 
larryloeb
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larryloeb,
User Rank: Author
8/15/2015 | 10:09:34 PM
Re: You should know better.
Know how Apple gets away with it?

Their OS and the ecosystem around it, not the hardware.

Android is totally vulned because of all the different Android versions out there.

Apple rules their OS, and doesnt have to put up with what manufacturers do. They are the manufacturer.
realjjj
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realjjj,
User Rank: Apprentice
8/15/2015 | 9:24:54 PM
You should know better.
"coupled with competition from the likes of Apple's iPhone and Samsung"

Those 2 have been bleeding share for years too, Apple has a better year now on a huge upgrade cycle since their installed base was on tiny toy screens but share loses will resume if they don't do more. Samsung is just offering less and less for more, giving up share for margins.

"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."

On what planet is HTC known for lower end handsets? They had lots of high end devices well before there was an iphone. Then , calling the iphone high end is debatable. research firms categorize handsets by retail price but that's the wrong way of doing it for everybody except the handset makers. Users do it by specs, component makers would be better served if it was by BOM/specs. The iPhone 6 BOM must be some 150$ now, someone like Xiaomi or Meizu would sell such a device at 200$. Defining the categories by price is really bad research. If you take the Xiaomi Redmi Note 2 at 125$ in China vs the Galaxy A7 at 4 times more in China, the devices are similar, the Xiaomi is faster, the Samsung is shinier but labeling the Xiaomi as low end and the Samsung as high end is just ridiculous. Sure too many consumers are irrational and uninformed but considering all consumers to be that and categorizing devices by retail price when there are such huge gaps is bound to paint the wrong picture about the market. To make it worse research firms also ignore carrier subs, why count a device as 700$ when it's in practice sold at 200$ or less.

HTC dies on many mistakes over the last few years and the fear to adapt to new realities. Old phone makers need a 50% price cut, how they get there is up to them - this includes Samsung, LG, Sony and all the others non-Chinese players.

Lenovo is in trouble on carrier subs declines in China last year. They are yet to shift from carrier phones to full retail in that market. Currency in some other markets made it worse.Competition in India from Chinese players also hurt Moto, although Lenovo overall is doing ok in India. The good part is that Lenovo's CEO is a smart guy, just not sure he picks the right people for the job.


Going forward the competition has room to become a lot more intense if old school players decide to adapt and compete, if carrier subs shift a bit and if midrange SoCs go from many small cores to a a couple big ones and some small ones- this last bit is more important than it seems, it would allow for sub 200$ devices to offer a great experience.

Hmm ,you know, the US is in a bubble, the smartphone market has been killed by carrier subs ,very few models for sale, poor prices and the press is not used to look outside since in PC the US was the key market. You should buy something like the Xiaomi Redmi Note 2 (no US LTE bands but price per specs likely the best phone in the world right now - won't last more than a few months) or at least a Moto G ( not ideal since those specs are half the price in China/India) and use the device for a few months even if you hate it at first. It's hard to imagine the ocean if all you've seen is the desert.

 
larryloeb
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larryloeb,
User Rank: Author
8/15/2015 | 12:09:45 PM
Re: think different
Yeah, commodity PC business is tanking. But it has been for awhile. People have other computing choices.

VR is going to be a competitive business, too. I don;t know much about Hive, but the software that uses it will no doubt be a big factor in its adoption.
danielcawrey
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50%
danielcawrey,
User Rank: Ninja
8/15/2015 | 10:54:12 AM
Re: think different
I think HTC has a compelling product and developer interest with the Vive virtual reality headset. When it comes to Lenovo, I don't think the picture is as rosy.

I remember back when IBM sold its computer business to Lenovo that I thought the hardware business was tough, especially for consumer PCs. I think we're starting to see the effects of that now. 
CharlesB21101
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CharlesB21101,
User Rank: Strategist
8/13/2015 | 5:58:33 PM
Really, room for just two smart phone manufacturers?
That's true, Tom, unfortunately. It's too bad the number of handset manufacturers is shrinking to just two. That's not good for the consumer in the long run. HTC was an innovator that kept the stronger parties honest.
Thomas Claburn
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0%
Thomas Claburn,
User Rank: Author
8/13/2015 | 5:28:26 PM
think different
Differentiation on Android isn't easy, particularly when the more software these hardware companies add, the worse the user experience generally is.
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