Lenovo Cards Its First Loss For Six Years Following Major Restructuring

Lenovo is through a difficult last quarter, in which it laid off 3,200 staff and wrote off $300 million in unsold smartphones, and in which it realized its first loss for more than six years.

The Chinese company, which is the world’s top PC maker and a top five smartphone company, reported a better than expected Q2 2015 net loss of $714 million on revenue of $12.2 billion. Revenue-wise, Lenovo was up 16 percent year-on-year and 15 percent on the previous quarter, but over $923 million was spent on “restructuring costs” and that smartphone write-down.

Those two line items took the company into the red, but Lenovo estimated that the changes will save it around $650 million in costs during the second half of the year, and thus something in the region of $1.3 billion annually.

That streamlining is important because the PC market, where Lenovo owns 21 percent and has been top dog for 10 successful quarters, is shrinking. While the company said the 15 million PCs that it shipped in the three-month period represented “a 6.6 point premium to the overall market decline of 11.1 percent,” the $8.1 billion revenue that was generated is down 17 percent on the same quarter last year.

Mobile is equally challenging since making healthy margins on mid-range phones, where most of the sales volume is in the smartphone business, is tough. (Just ask HTC about that — it is doing so badly that it has stopped forecasting its revenues.)

Lenovo’s smartphone sales grew 11 percent year-on-year and 16 percent quarter-on-quarter to reach 18.8 million units (Motorola sales were not broken out). But that mobile business carded a $217 million loss for the quarter on revenue of $1.4 billion.

To combat those challenges, Motorola, the company that Lenovo bought from Google for $2.91 billion, has been integrated into Lenovo’s central mobile business. In addition, Lenovo said that it has increased its focus on markets outside of its native China — sales outside of China now account for 70 percent of revenue, as opposed to 19 percent a year ago, the company claimed.

Those changes and a “streamlined” set of smartphone, tablet and smart TV products — such as the recently announced ‘unbreakable’ DROID Turbo 2 and very iPhone 6-like Lenovo Phab Plus — are what Lenovo believes can turn its mobile business profitable within the next six months.