Lenovo 2009 Annual Report Download - page 16

MANAGEMENT’S DISCUSSION & ANALYSIS
2008/09 Annual Report Lenovo Group Limited
14
Business
Review
Despite the challenging macro environment during the
2008/09 fiscal year, the Group stayed focus on improving
cost efficiency and competitiveness and made steady
progress in various areas.
The impact of the global economic crisis in 2008
reached far and wide. It has significantly affected the
worldwide PC market demand as many large
enterprises delayed purchase decisions and reduced
IT budgets. Even the growth of the China PC market
has slowed down under the economic challenges. At
the same time, the PC industry as a whole has shifted
dramatically and rapidly to lower price points, imposing
additional pressures on industry players.
During the 2008/09 fiscal year, the year-on-year
growth of worldwide PC market shipments decelerated
to approximately 4 percent, mainly supported by
consumer and low-priced notebook segments. The
China PC market and worldwide commercial PC
segment in which Lenovo® is heavily weighted showed
significant slowdown in the second half of the fiscal
year under the economic crisis. In addition, the Group
could not enjoy the benefits of the growth in transaction
space as it has not adequately addressed the worldwide
transaction segment outside China, in particular the
consumer market. Lenovo reported lower-than-market
growth in its worldwide PC shipments which only
increased by approximately 2 percent year-on-year. As
a result, the Group’s market share decreased slightly to
7.6 percent, ranking number four worldwide during the
fiscal year.
The Group’s financial performance in the second half of
the 2008/09 fiscal year was significantly impacted by the
widespread economic slowdown. Lenovo’s overall sales
for the fiscal year decreased 9 percent year-on-year
to approximately US$14,901 million, resulting from the
slower PC shipment growth and a steeper-than-normal
decline in average selling prices exacerbated by the
weak economic backdrop. The Group’s gross margin
performance was further affected by the continued shift
in the market to lower price points, aggressive pricing
and currency fluctuations. The gross margin (excluding
one-off items) for the fiscal year declined to 11.9
percent from 15.0 percent while gross profit (excluding
one-off items) decreased 27 percent year-on-year to
approximately US$1,779 million.
In anticipation of continued deterioration in the global
economic environment, Lenovo announced a global
resource restructuring plan in January 2009 to reduce
costs and enhance operational efficiency. About
2,500 employees were eliminated as a result of this
action which is expected to realize annual savings of
approximately US$300 million on a run rate basis in the
coming fiscal year. Despite Lenovo’s efforts to control
expenses during the 2008/09 fiscal year, the decline
in sales and pressure on gross margin resulted in 95
percent year-on-year decline in the Group’s profit before
taxation (excluding the cost of restructuring actions
and one-off charges) to approximately US$29 million
for the year. The Group reported a loss attributable to
shareholders of approximately US$226 million, after
accounting for US$146 million of restructuring costs
and US$71 million of one-off charges. This compared
to a profit attributable to shareholders (including US$20
million net profit from discontinued operations) of
US$484 million in the previous fiscal year.