Lenovo to lose one in 10 staff

PC vendor Lenovo is cutting more than one in 10 of its staff and slashing executives' salaries as part of a major restructuring drive designed to cut costs.

During the first three months of this year, the company will shed 2,500 worldwide staff, which represents about 11 per cent of its workforce. The job cuts will include senior management figures and functions including finance, human resources and marketing will also be scaled back.

Executives that survive the cull will face a pay cut of between 30 and 50 per cent as well as reductions in merit and performance pay and long-term incentives. The first casualty of the cuts is Scott DiValerio, who led Lenovo's Americas Group, which will now report direct to Rory Read, senior vice president of operations.

Chairman of Lenovo's board Yang Yuanqing said: “Although the integration of the IBM PC business for the past three years was a success, our last quarter’s performance did not meet our expectations. We are taking these actions now to ensure that in an uncertain economy, our business operates as efficiently and effectively as possible, and continues to grow in the future.”

The vendor is also merging its China and Asia Pacific operations, which were previously standalone units, into one organisation. The new Asia Pacific and Russia arm will be led by Chen Shaopeng, currently Lenovo's president of Greater China. Asia Pacific chief David Miller is set to depart the firm after the transition is complete.

Lenovo is also relocating call centre functions from Toronto to Morrisville in North Carolina. The company indicated this would bring call centre staff closer to marketing and sales teams, allowing them to work more harmoniously.

The vendor claims the restructuring plans will provide it with $300m (£199m) in savings during its next fiscal year, which begins at the start of April. The company swallowed $24m in restructuring charges during the three months to the end of September and is expecting a $150m hit during the first three months of this year. Lenovo also indicated it is expecting to report a loss for the quarter which ended on 31 December.

Lenovo's share price took a battering in 2008, falling more than 70 per cent over the course of the year. The stock rose almost 20 per cent this week as speculation mounted that the firm was set to announce a structural overhaul, but shares were suspended yesterday prior to today's announcement.

Chief executive William Amelio said: “The actions we are taking today are not easy and we will act with compassion and respect for the individuals in our company who are most affected.

"As hard as this news is for all of our employees, we believe the steps we are taking today are necessary for Lenovo to compete in today’s economy and, in the long run, will help us to continue to deliver exceptionally engineered PCs to our customers worldwide.”