During an earnings call on Wednesday, Lenovo announced they will depend on Motorola to design and produce smartphones for the company. Lenovo acquired Motorola from Google in 2014, in an effort to beef up their their smartphone offerings in the United States. Since then, Motorola has gone on to release the most popular smartphone in its history, the Moto G, and what is widely regarded as the best Android Wear smartwatch on the market, the Moto 360.
Lenovo has stated that they will reshuffle their mobile division to offer a more “streamlined product portfolio, with fewer, more clearly-differentiated models.” That’s probably a smart move on Lenovo’s part. While they’re not a complete unknown in the smart phone world, they do only account for 5.6% of the market and that takes into account sales from Motorola. Following the vision of Motorola‘s mobile division to put out higher quality smartphones cheaper than their competitors would seem to be strategically advantageous. Lenovo can still release high end phones under their own name like the P90, Vibe X2 pro, and Vibe Shot which were announced at CES.
While some may see this as good news, the earnings call wasn’t all positive. Lenovo is facing increasing competition and negative headlines in both the mobile and computer markets and it shows in their numbers. While quarterly revenue was $10.7 billion (a 3% increase year-over-year), first quarter pre-tax income decreased 80% to $52 million and net income declined 51% to 105 million.
[blockquote author=”Lenovo”]Lenovo saw severe challenges in its main markets. It faced significant declines in the global PC and tablet markets, as well as slowing growth and increasing competition – especially in China – in smartphones. There were macroeconomic challenges in Brazil and Latin America and large currency fluctuations, intensifying competition, which hurt Motorola’s profitability in particular. Finally, Lenovo saw a rapidly shifting technology demand landscape in the enterprise business.[/blockquote]
In addition to restructuring the mobile group, Lenovo also announced that they will preposition their enterprise group to “attack” the most relevant and attractive market segments, accelerate the drive for 30% share in PCs and strive for greater efficiency across all functions. Lenovo says this will save them $650 million in expenses in the second half of this year and $1.35 billion on an annual basis. To accomplish the cuts, Lenovo will cut about 10% of it’s non-manufacturing staff and 60,000 people total.