by winston » Fri Aug 14, 2015 5:21 am
Lenovo Q1 profit plunges 51pc
Lenovo Group (0992) shares fell to a two-year low yesterday after the firm posted a 51 percent drop in net profit during the first quarter and said it would cut 3,200 staff.
The shares dropped 9.1 percent to close at HK$7.70, the lowest since September 2013. The stock is down 25 percent this year, the third-worst performance on the benchmark Hang Seng Index.
Revenue for the three months to June 30 rose 3 percent from a year back to US$10.7 billion, compared with the US$11.5 billion average of analyst estimates.
Net income for the quarter dropped 51 percent to US$105 million (HK$819 million), and diluted earnings per share fell to 94 US cents.
Lenovo said it would cut 5 percent of its workforce and reduce its reliance on China which made up 30 percent of its revenue as the world's second-biggest economy is growing at a weak pace.
"This was the toughest quarter since 2008 for the PC market," chairman Yang Yuanqing said yesterday. "We still think we should react to the market changes to reduce fixed costs."
About 3,200 non-manufacturing jobs will be cut from a total workforce of 60,000, Lenovo said.
The cuts will save US$1.35 billion annually.
The majority of its cost cuts will come from a move to integrate the Motorola unit with Lenovo's legacy phone business, Yang said. The cuts will save US$850 million annually at the unit.
"The restructuring is indicative that they are lowering their overall expectations in the smartphone business," said Alberto Moel, an analyst at Sanford C Bernstein.
Lenovo will shift its smartphone focus away from China, where some new vendors are "playing irrationally," Yang said.
The slump in China's currency to a four-year low this week may erode profit margins, wrote analysts at Jefferies Group, led by Ken Hui.
Lenovo sources some computer components in dollars, so a 1 percent drop in the yuan's value can cause gross margin to fall by 10 basis points to 20 basis points, they wrote.
Source: BLOOMBERG
It's all about "how much you made when you were right" & "how little you lost when you were wrong"