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Lenovo Cuts 2,500 Jobs; Plans Restructuring

The economic slowdown and a slump in PC and x86 server sales is to blame, the company says.

The workforce reduction amounts to about 11 percent of the total worldwide workforce for the Beijing, China-based company, which has its U.S. headquarters in Raleigh, N.C.

Included in that number are three of the company's senior managers, including Scott DiValerio, senior vice president and president for the Americas; Steve Petracca, senior vice president of mergers and acquisitions; and David Miller, senior vice president and president of Asia-Pacific.

Remaining executives will also face a pay cut of 30 percent to 50 percent, including merit pay and long-term incentives, as well as any performance payments for the coming year, Lenovo said.

A Lenovo spokesperson said total job cuts in North America will amount to about 300 people. This includes layoffs of about 200 people in Toronto, Ontario, where Lenovo will close a customer call center, as well as 250 people in the Raleigh area across the company's sales, marketing, support, services, engineering and design operations. However, the company will hire 100 people in the Raleigh area to staff a new customer call center being built there, the spokesperson said.

There are no structural changes planned for Lenovo's North American channel team, but that team could see some employee reductions in line with changes across the entire company, the spokesperson said.

As part of the restructuring, Lenovo is also consolidating its China and Asia Pacific organizations, which are currently run as separate business units, into a single business unit now known as Asia Pacific and Russia (APR) in order to help cut operating expense and duplicate support and staff functions.

Lenovo in December of 2004 acquired IBM's PC division. It then followed up that acquisition with the signing last January of a licensing agreement with IBM to produce Lenovo-branded entry-level servers based on IBM designs.

As a result, Lenovo is the world's fourth-largest combined PC and x86-based server manufacturer in the world, according to analyst firm IDC. However, of the top five vendors worldwide, Lenovo's growth was significantly lower than the others in the third quarter of 2008, IDC said.

IDC said in December that it expects the worldwide market to grow only 3.8 percent in 2009, while the U.S. market should actually contract 2.9 percent.

Those trends weighed in the decision to restructure and eliminate the jobs, said Yang Yuanqing, Lenovo's chairman of the board, in a statement.

"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. "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."

As a result of the restructuring, Lenovo expects to cut costs by about $300 million in the 2009/2010 fiscal year, which ends March 31, 2010, and expects to report a loss for the third fiscal quarter that ended December 31, 2008.

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