Lenovo, HTC to slash jobs as Android smartphone makers struggle

Smartphone makers Lenovo and HTC both said they will cut jobs as they seek to increase profitability, an indication of both weakening demand in China and other major smartphone markets as well as the difficulty of Android-focused OEMs to achieve a profit.  

In conjunction with its quarterly earnings announcement, Lenovo said it is going to cut 3,200 jobs in its non-manufacturing workforce around the world. That equates to about 10 percent of its non-manufacturing headcount and about 5 percent of the company's total workforce of 60,000 people.

Industry analyst Chetan Sharma said on Twitter that "if Lenovo can't find a way to make $ in the smartphone business, few Android OEMs have hope."

Meanwhile, struggling vendor HTC separately said it plans to cut 15 percent of its workforce and slash operating expenses by 35 percent. HTC said it will cut about 2,250 jobs by the end of this year as part of its restructuring plan.

Lenovo said in a statement it is going to restructure its mobile business group to "align smartphone development, production and manufacturing and better leverage the complementary strengths of Lenovo and Motorola." The company is going to offer a more simplified and streamlined product portfolio, with fewer, more clearly differentiated models.

"A faster, leaner business model will better leverage Lenovo's global sales force and accelerate the efficiency actions already underway in its global supply chain," Lenovo said, adding that the mobile group "will continue to drive the overall mobile business, but will now rely on Motorola to design, develop and manufacture smartphone products."

Lenovo was the No. 5 smartphone player in the world in the second quarter, according to research firm Strategy Analytics, with sales of 16.2 million total smartphones and a global market share of 4.8 percent. However, Lenovo saw its position slide from the year-ago quarter, when it shipped 23.8 million smartphones and had 8.1 percent market share.

Lenovo said it was buffeted in the second quarter by currency fluctuations and challenging macroeconomic conditions in Brazil and other Latin American markets, which are the strongest markets for its Motorola Mobility unit. Additionally, the company said that competition in China grew more intensified

Lenovo said sales in its mobile group were $2.1 billion in the calendar second quarter, up 33 percent year-over-year, due to the inclusion of revenues from Motorola. Motorola contributed $1.2 billion to Lenovo's mobile revenues. However, the mobile group also posted a pre-tax loss of $292 million, compared to a loss of $9 million in the year-ago period, when Motorola was not yet part of Lenovo.  

Motorola's contribution to Lenovo's smartphone shipments came in at 5.9 million units in the second quarter, which was a 31 percent year-over-year decline. "This performance resulted from several factors including intensifying competition, long product development lifecycles with related inventory issues, macroeconomic issues in Brazil (a large market for Motorola), and a fixed cost structure that was out of balance with the losses incurred," Lenovo said. Yet Lenovo said it is committed to making Motorola profitable two to three quarters from now, though the goal is now being extended to the full mobile unit, where Motorola's results are included.

Meanwhile, HTC said that it will establish new business units as it focuses on premium smartphones, virtual reality and connected lifestyle products. Last week HTC said that it would produce fewer smartphone models, with a focus on the premium smartphone segment. As its smartphone sales have slowed, especially in China and in the premiums segment, HTC has branched out into other product areas.

HTC plans to launch its Vive virtual reality headset by the end of the year and has said it has been working with more than 1,000 developers on content creation. However, HTC also delayed the launch of a fitness-focused wearable product and HTC CFO Chialin Chang said last week the company does not expect to record revenue from those products until 2016.

"HTC is an inspirational company driven by innovative people, with a unique blend of expertise in hardware and software integration, advanced technology and world-class design. Now, as we diversify beyond smartphones, we need a flexible and dynamic organization to ensure we can take advantage of all of the exciting opportunities in the connected lifestyle space," HTC Chairwoman and CEO Cher Wang said in a statement. "This strategic realignment of our business will ensure that each product group has the right focus, the right resources and the right expertise to win new markets."

For more:
- see this Lenovo release (PDF)
- see this Lenovo presentation (PDF)
- see this WSJ article (sub. req.)
- see this Reuters article
- see this Bloomberg article
- see this HTC release
- see this separate WSJ article (sub. req.)
- see this Re/code article

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