MORRISVILLE, N.C. — Lenovo’s “resource deployment plan” sounds just like “resource action” at IBM – restructuring and layoffs. However, there’s one thing Lenovo didn’t inherit something from Big Blue when it acquired IBM’s PC division for more than $1 billion back in 2005. The Chinese founders and U.S. investors who control the company are making sure management pays the price for lack of performance.
While 11 percent of Lenovo’s global work force – including a couple hundred among the 1,700 at the global headquarters campus in Morrisville – hit the street, they aren’t the only ones who will be feeling the pain. Lenovo said top managers’ compensation will be cut from 30-50 percent.
That slash in pay is a stunning rebuke for Chief Executive Officer William Amelio and the other top managers he hand-picked to lead Lenovo after he bolted Dell for the top spot at the world’s No. 4 PC-maker in December 2005.
Additionally, two top Lenovo executives are leaving as part of the “resource deployment,” including the head of sales for the Americas.
Scott DiValerio, president for Lenovo’s operations in the Americas who led the sales organization, “will be leaving the company,” Lenovo said.
And David Miller, head of Asia Pacific operations, is out. Amelio recruited Miller away from Dell for that Asia-Pacific post.
Rumors had circulated in Chinese media that Lenovo Chairman Yang Yuanqing might step down as part of the reorganization, but no such move was announced Thursday.
“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,” Yang said in a statement. “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.”
Didn’t “meet expectations” is a nice way of saying that Lenovo bungled attempts to establish a global presence as a provider of PCs and laptops for consumers. While Lenovo did increase shipments and introduced a wide variety of new models, including cheaper, slimmed-down “netbooks,” the company actually lost global market share.
Additionally, over the past year, Lenovo has failed to make European and Brazilian acquisitions that could have expanded its brand and support infrastructure. Instead, Acer – Lenovo’s bitter rival based in Taiwan – scooped up Gateway, Packard Bell in Europe and vaulted past Lenovo to No. 3 behind HP and Dell. Acer also has scored a resounding success with netbook sales that exceeded Lenovo’s.
Will the resource plan make a difference for Lenovo?
Charles Guo, an analyst at J.P. Morgan Chase in Hong Kong, isn’t convinced. He told The Wall Street Journal that Lenovo’s failure to gain global market share indicates internal problems. He also told The Associated Press that Lenovo had to make changes.
"This is something they have to do. If they don’t do it, the company will have a huge loss,” he said. "We believed they had to do something drastic. This 11 percent is within our expectations."
But he warned, too, that since Lenovo remains so reliant on corporate sales for business, the news could get worse. After all, IT spending is taking a hit as the global recession deepens.
"Overall, it will be quite difficult for Lenovo in the next nine to 12 months," he said.
Those are ominous words.
