Lenovo Reports Loss, CEO Out - InformationWeek

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Infrastructure // PC & Servers

Lenovo Reports Loss, CEO Out

The Chinese computer maker's first quarterly loss in three years was attributed to the global economic meltdown, which caused a 20% decline in sales.

Lenovo on Thursday reported its first quarterly loss in three years as the global economic downturn "deeply impacted" sales. In addition, the computer maker announced the resignation of its chief executive.

CEO William Amelio was replaced by board chairman Yang Yuanqing, who was chief executive from 2001 to 2004. Company founder and board member Liu Chuanzhi returned as chairman, and senior VP Rory Read was named to a newly created position of president and chief operating officer.

The Chinese computer maker reported a 1% drop year to year in shipments in China during the fiscal third quarter, ended Dec. 31. China is its largest market, accounting for 45% of sales. In North America, which accounts for 25% of sales, shipments fell 6%. Sales dropped 3% in Europe, the Middle East, and Africa, and 23% in the Asia-Pacific region. Overall, laptop sales fell 20% year to year and desktop sales declined 21%.

"In the past quarter, same as many other companies, Lenovo was deeply impacted by the global economic turmoil," Yang said in a statement.

In the third fiscal quarter, Lenovo lost $97 million, compared with a profit of $172 million a year ago. Sales fell by 20% to $3.6 billion from $4.5 billion. The loss was the first since the January-to-March quarter of 2006.

Lenovo, the world's fourth-largest PC maker, last month launched a restructuring of its business that involved cutting 2,500 jobs worldwide and chopping executive pay. The move is expected to save $300 million in the next fiscal year, which ends in March 2010.

While the reorganization is expected to reap benefits in time, Lenovo in the near term is likely to be more heavily impacted by the global economic downturn than its competitors, said John Spooner, analyst for Technology Business Research. In addition, the company faces stiffer competition from larger vendors such as Hewlett-Packard.

"We believe that the near-term outlook for Lenovo’s business -- that is the first half of 2009 -- is grim," Spooner said in a e-mail. "We expect continued slowness in the global IT market and the China market to further erode Lenovo’s unit shipments in the first quarter, which will in turn impact its revenue.

"We predict that profitability will continue to be an issue for the company as its business customers will continue to purchase its lower-priced PC models."

In the long term, however, Lenovo's cost cutting and its decision to outsource more of the manufacturing of its PC models to decrease prices of its products to consumers and small and medium-sized businesses are likely to "improve Lenovo's position at the time of an eventual market recovery," Spooner said.

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