Analysts are optimistic about Lenovo's latest restructuring plans, but predict challenges ahead for the computer giant particularly in the US market.
"Lenovo's management has become a lot more savvy concerning the global PC channel and how to attack it," said William Bao Bean, a research analyst with Deutsche Bank in Hong Kong.
"After a year's wait Lenovo is launching new products, flattening its sales structure and focusing on partners to open up the small and medium business market, as it did two years ago in China. It is also searching for further efficiency in its supply chain, and in research and development."
As part of this move to greater efficiency, Lenovo announced on Friday that it will cut five per cent of its 21,000 staff, including about 16 per cent of its employees outside China.
The majority of the overseas layoffs are expected to be among ex-IBM staff who now make up about half of the company's employees.
"It is expected that a total restructuring cost of $100m will be incurred," said KGI Securities of Taiwan in a research note released today.
"The management has given a guidance of $100m cost saving in fiscal 2007 and an anticipated annual saving of $250m starting from 2008 and afterwards."
Observers believe that incoming chief executive William Amelio had little option but to sweep a broom through the organisation, following poor performance from the newly integrated IBM division.
The hoped for $250m savings will eventually have a very significant positive impact on Lenovo's bottom line, and financial analysts expect investors to begin returning to Lenovo in anticipation of this impact.
In an intensified effort in the key US market, Lenovo will try to reach out directly to customers by working far more closely with systems integrators and resellers. The company had previously focused its efforts higher up the sales chain, mostly on distributors.
"This is similar to other players' strategies," commented Bao Bean. "But Lenovo is also forming an inside sales force in addition to its external sales. "
Analysts are positive about the new US strategy, but do not expect it to produce easy or swift results.
Deutsche Bank also noted that Lenovo still faces risks worldwide as it continues to integrate IBM's PC business while trying to roll out more of its home-grown products outside China.
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