Lenovo's Tough Road to Mobile Integration -- WSJ
May 27 2016 - 2:03AM
Dow Jones News
By Wayne Ma and Anjie Zheng
HONG KONG -- A year and a half ago, Lenovo Group Ltd. spent $5
billion to buy its way into growth sectors such as smartphones and
servers as the personal-computer market slowed. But return to
growth hasn't come easily.
The Chinese PC maker underestimated how difficult it would be to
integrate its 2014 acquisition of Motorola Mobility's handset
business, Lenovo Chief Executive Yang Yuanqing said in an interview
Thursday. Lenovo itself had grown to become the world's largest PC
maker by shipments through the acquisition of International
Business Machines Corp.'s computer business more than a decade
ago.
"We are definitely facing some challenges" in the mobile-phone
business, he said, after Lenovo reported its first annual loss in
six years.
The company attributed the weak performance to slowing PC demand
and costs related to integrating Motorola's handset business, which
it bought for $2.91 billion from Alphabet Inc.'s Google unit.
Mr. Yang said in the interview that he expects losses to
continue at the company's mobile unit in the "short-term" but added
he was optimistic he could turn it around and "pursue profitable
growth over time."
As part of its strategy, Lenovo will be pushing high-end
smartphones in the U.S. market. Mr. Yang said Lenovo plans to
launch on June 9 in Silicon Valley two new smartphones, one under
the Motorola brand and another device that uses Google's Tango
platform which comes with features such as motion tracking and
depth perception.
Lenovo has struggled to hold ground against Chinese smartphone
rivals such as Huawei Technologies Co. and Oppo Electronics Corp.,
which gained market share in the first calendar quarter, while
Lenovo fell out of the top-five rankings, according to
market-research firm Gartner.
In the U.S., Lenovo had little presence in the smartphone market
but through its acquisition of Motorola boosted its market share to
5.2% last year, according to market-research firm International
Data Corp. That compares with 22.7% for Samsung Electronics Co. and
16.2% for Apple Inc.
Lenovo said the company's world-wide smartphone shipments fell
13% in its fiscal year ended in March due to weaker demand in China
and the U.S.
It added that its world-wide market share for smartphones
dropped 1.1 percentage points to 4.6%. Meanwhile, its mobile
business booked a loss of $469 million in its latest fiscal
year.
In the competitive China market, Mr. Yang pointed to a shift in
the handset business model where smartphones that were once sold
solely through wireless carriers are now sold directly to
consumers. "The market is shifting from the operator's market to an
open market, and unfortunately we haven't built that solid
foundation," Mr. Yang said. Lenovo did meet its target to turn
Motorola profitable in its fiscal fourth quarter, but it came at
the price of steep cost cuts. The company said last August it would
cut $650 million from expenses at the unit over the second half of
the year, including staff reductions. Mr. Yang said that as long as
the smartphone market didn't deteriorate further, the company
wouldn't need more cost cuts.
Lenovo said its fiscal fourth-quarter profit rose to $180
million from $100 million a year earlier thanks to lower operating
expenses and employee-benefit costs. The company posted a net loss
of $128 million for the year ended March 31, which compared with a
profit of $829 million in the year-earlier period.
Operating costs dropped by 23% in the quarter, and
employee-benefit costs were lower because of the reduced head
count, the company said.
Revenue fell to $9.13 billion from $11.3 billion in the
year-earlier quarter, as sales fell across all regions.
Shortly after Lenovo's annual results were posted, Mr. Yang sent
out an email to his employees pledging not to accept any bonuses
offered to him because of the company's financial performance last
year, according to the company.
Lenovo's shares are down 37% since the start of the year.
"We all share in our success, and with our culture of commitment
and ownership, we must all understand that in tough times we share
the responsibility too," he wrote.
--Eva Dou contributed to this article.
Write to Wayne Ma at wayne.ma@wsj.com and Anjie Zheng at
Anjie.Zheng@wsj.com
(END) Dow Jones Newswires
May 27, 2016 02:48 ET (06:48 GMT)
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