Lenovo Cuts 450 Jobs in China

Lenovo Group will cut 450 jobs in China, expanding efforts to cut costs as the company struggles with sagging PC sales.

The affected Chinese employees all work in positions that support Lenovo's global business, the company said in an e-mail statement.

"While our business in China remains very strong, many of our global support functions have employees based in China. Although difficult, these reductions are a necessary part of our response to the global economic downturn," Yang Yuanqing, the company's CEO, said in the statement.

The latest round of job cuts come on top of 2,500 layoffs announced last month and highlights the severity of the challenges that Lenovo now faces. China's largest PC maker, Lenovo has seen sales drop in its home market, a problem that is compounded by sinking sales in India, Europe and North America.

Earlier this month, former CEO William Amelio stepped down from the company. The announcement came at the same time Lenovo announced a 20 percent drop in fourth-quarter sales. Amelio was replaced by Yang, who stepped down as chairman to take the CEO title he held prior to the 2005 acquisition of IBM's PC division. Liu Chuanzhi, Lenovo's former chairman, returned to take his old position.

Liu and Yang hope that a renewed focus on Lenovo's home market will help revive the company.

During a Feb. 5 conference call with reporters, Liu said Lenovo was not turning away from its international expansion plans, just putting more emphasis on China and emerging markets. But the latest round of layoffs likely signal that Lenovo's forecast for international sales has deteriorated since last month, and the company is looking to cut costs more deeply in this part of its business.

The 2005 acquisition of IBM's former PC division made Lenovo the third-largest PC maker in the world, behind Hewlett-Packard and Dell, and gave it control of the popular ThinkPad laptop brand.

Given the company's position in China's fast-growing market, Lenovo's continued strength seemed assured and the company decided to stop using the IBM brand on its ThinkPad laptops in 2007, three years ahead of schedule. But the cracks were starting to show as Lenovo struggled to keep pace with rivals.

During 2007, the company slipped behind rival Acer into the No. 4 spot among PC makers.

The company's top management also changed. Stephen Ward, the former IBM executive who was appointed CEO after the Lenovo deal, stepped down one year later. He was replaced by Amelio, a former Dell executive who once oversaw that company's Asian operations.

There were also missteps on the product side. Lenovo belatedly recognized the shift towards small, inexpensive laptops, called netbooks, that use Intel's Atom processor and provided most of the growth in laptop shipments last year.

When Lenovo finally announced its S10 netbook in August, the company was already three months behind rivals like Acer, who unveiled Atom-based laptops in June. The S10 finally hit the market in October, four months behind Acer's popular Aspire One, which went on sale in July.

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