Lenovo Announces Restructuring Plan

By Jeffrey Burt  |  Posted 2006-03-16

Lenovo Announces Restructuring Plan

Computer maker Lenovo Group, which last year vaulted onto the international scene with its $1.7 billion purchase of IBMs PC business, is enacting a reorganization that includes streamlining its global marketing and sales and consolidating operations such as manufacturing and research and development.

The plan will include about 1,000 layoffs, reducing its workforce of 21,400 by about 5 percent.

However, it is designed to make the company more approachable to its customers and thus position it better in the highly competitive PC business, said William Amelio, Lenovos CEO.

"These steps position Lenovo as a more effective global competitor while supporting our commitment to lead in innovation and customer satisfaction," Amelio said in a prepared statement.

The changes, Lenovo said, will save it about $250 million annually, while allowing it to dedicate more resources to some operating.

It will take six months to a year to complete. Lenovo expects to take a restructuring charge of about $100 million in its fiscal fourth quarter, which ends March 31.

"We want Lenovo to deliver profitable growth everywhere we do business. The plan we are announcing today helps us achieve that, positioning Lenovo to pursue growth aggressively in both the relationship and transaction customer segments and delivering a cost structure that better reflects the realities of todays highly competitive global PC industry," Amelio said.

Lenovo brought Amelio, who is considered to be an operations expert, in to do just that.

Click here to read more about Lenovos CEO switch.

Thus, as part of its plan, Lenovo will consolidate several functions in an effort to create a greater focus on its customers, after he said to analysts that those customers told him Lenovo was difficult to interact with.

The plan creates new teams that pair sales and support personnel, analysts said.

Regional department heads will report directly to Amelio, removing a layer.

The company will also forge a tighter relationship with IBM Global Services, the analysts said.

Lenovo will thus integrate its sales, service, support and fulfillment units throughout the Americas, Europe, the Middle East and Asia to give customers a single point of contact for the company.

Not unlike moves by its rival, Hewlett-Packard, last year, Lenovo officials said they wanted to cut layers in the sales units and give company representatives closer to the customer greater autonomy and decision-making abilities in hopes of creating a more responsive and customer-friendly structure.

Next Page: Changes and consolidations.

Changes and Consolidations

Lenovo will also centralizing its desktop team in China to improve efficiency and, in turn, will move its base of corporate operations from Purchase, N.Y., to Raleigh, N.C., where it already has significant research-and-development facilities and staff, all acquired via the IBM deal.

Many analysts, following the appointment of Amelio, had expected the company to consolidate its operations in one way or another.

Thus "My reaction is that this is good news," said Roger Kay, president of EndPoint Technologies Associates in Wayland, Mass.

"Everyone has expected cost reductions for a long time."

At the same time, "Amelios description of the cost cuts is eminently rational…and hes doing it in all areas at the same time. It seems like a comprehensive plan," Kay said.

The changes, Kay indicated, will allow Lenovo to focus on the task at hand, which is moving forward following its IBM deal.

Buying IBMs PC business catapulted Lenovo—which until then had been the largest PC vendor in China—into the position of worlds third largest computer maker.

Along the way, it acquired the ThinkPad line of notebooks, Think Centre desktop business and the ThinkVantage management software.

But its still working on making a name for itself.

Creating better brand recognition will be a key factor for Lenovo, its officials said March 12.

The company was a major sponsor of the Winter Olympics last month, and hoped to use the Games in Turin, Italy, as a coming-out party for the company onto the international stage.

It used the Games as the launching pad for its new line of desktops and notebooks, with the brand name Lenovo 3000, some of which will offer processors from Advanced Micro Devices.

Amelio said Lenovo plans to take much of the projected $250 million in annual savings and drive it back into programs designed to create new products and increase brand recognition.

"Our global strategy will remain focused on developing high-growth markets such as SMG and emerging countries," he said.

"In the current stage of the strategy execution, substantial strides forward have been made in all key areas—innovation, customer satisfaction and operational excellence. … I believe our action plan will drive additional successful strategy execution toward our goal of profitable growth."

Still, some observers may be waiting for the other shoe to drop, Kay said.

But "My sense is not for now—that this is a good operational base," he said. "I expect theyll assess [the changes] for the next couple of quarters in order to see if theyre having the desired effects."

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