Lenovo CEO resigns over first loss in three years

Personal computer maker Lenovo Group posted its first loss in nearly three years bringing in the resignation of its CEO William Amelio, as weak demand and cut-throat competition slams earnings of technology companies.

Analysts say a recovery for the world's fourth-largest PC maker, which competes with Hewlett-Packard, Dell and Acer, depends on how it manages to switch to the low-priced consumer market from corporate clients, which account for the bulk of its sales.

Lenovo expects to save $300 million in the year to March 2010 from a restructuring involving axing 2,500 jobs worldwide, cutting executive pay and consolidating its China and Asia-Pacific operations into a single division.

The company reported an October-December loss of $96.7 million, worse than a wide range of analyst forecasts ranging from an $8 million loss to a $96 million loss. Sales fell by a fifth and Lenovo's gross profit margin was squeezed by a continued market shift to entry level PCs, aggressive pricing and currency fluctuations, the company said.

The company lost $96.7 million, or $1.09 a share, on revenue of $3.59 billion in the quarter that ended in December. The quarterly loss was Lenovo's first since January-March 2006, when it posted an $89 million loss on restructuring costs.

Its shares ended 2.7 per cent at HK$1.46 lower in a broader Hong Kong market up 0.9 percent. The stock has lost 78 per cent from its 52-week high of HK$6.75.

"Look at our historical business trend and you will see the fourth quarter is the weakest quarter of our fiscal year," Lenovo's CFO Wong Wai Ming defended the results. However, further declines in profit margin will be limited and its business outlook will be better next fiscal year when savings are realized from the restructuring plan, Wong said.

As part of a senior management reshuffle, Lenovo said its CEO William Amelio will be replaced by Chairman Yang Yuanqing, while the company's founder, Liu Chuanzhi, will be the non-executive chairman. Liu had founded Lenovo, then known as Legend, in 1984.

Yang returns to the role of CEO, a position he held from 2001 to 2005, after serving as chairman for almost four years. Founder Liu Chuanzhi was chairman until 2005, before he joined private equity firm Kohlberg Kravis Roberts & Co. as a senior adviser.

Amelio, formerly a senior vice president for Asia-Pacific and Japan at Dell, was named as Lenovo's CEO in December 2005. His 3-year contract has expired and he will act as special adviser at the company until end-September.

''Lenovo has grown successfully on the international stage, but at this important time, we want to pay particular attention to our China business as it represents the foundation of our global business and growth strategy,'' Liu said. ''I am confident in our ability to strengthen Lenovo's growth in China and emerging markets.''

Yang said Thursday that the China business will make up a bigger share in the company's total revenue in the short term and that Lenovo would continue to expand in the consumer market. Lenovo, whose operations were previously all in China, inherited its corporate client focus when it bought IBM's PC business in 2005 for $1.25 billion.

As Lenovo's largest market, the Chinese mainland contributed 45 per cent of total revenue. Although shipments in the mainland declined 1 per cent in the third quarter due to the economic slowdown, its overall market share in the region grew 1.8 percentage points to 30.5 per cent. This is in sharp contrast to international sales.

Of the top four PC names, Lenovo posted the smallest growth last year, with shipments up 8 per cent, compared with a 53 per cent gain for Acer, 13 per cent for HP and 11 per cent for Dell. Lenovo had around 7.5 per cent of the global PC market in 2008, when it was overtaken as the No.3 player by more aggressive rival Acer, according to research firm IDC.