HTC and Lenovo have both announced that they're making large-scale layoffs as they struggle to achieve smartphone profitability.
HTC, which last week announced a $250 million after tax loss for the quarter ending June 30, is cutting 2,250 people by the end of the year. The layoffs amount to some 15 percent of the company workforce, and the move is part of a plan to reduce operating expenses by 35 percent.
HTC has said that it is forming new business units to focus on premium smartphones and virtual reality. Once a major player in the market, the company has seen its global market share shrink to less than two percent amid intense competition from both established players like Samsung and new companies such as Xiaomi.
HTC has partnered with Valve to produce the HTC Vive virtual reality headset, which represents a new market for the company. Early hands-on experiences with the device have been promising, but the company's core product remains smartphones—exactly where HTC's problems have been. When announcing its quarterly results, the company said that demand for high-end phones had been "weaker than expected," no doubt a reflection of the lukewarm response to the flagship One M9.
Lenovo's layoffs are even larger. The company is cutting 3,200 people, around five percent of its global workforce, with the cuts primarily being in the Motorola business acquired from Google in 2014. Lenovo's Mobile Business Group reported a $292 million pre-tax loss in the quarter ending June 30, spanning both Motorola and Lenovo-branded smartphones and tablets. While the group as a whole saw smartphone sales climb 2.3 percent year-on-year to 16.2 million (of which 5.9 million were Motorola devices), its market share was down 0.5 percent. Lenovo cited the tough competition as reasons for the poor Motorola performance, along with lengthy product development lifecycles.
The cost to Lenovo of the layoffs and subsequent restructuring were estimated at $650 million. The company said the moves will achieve savings of more than $1.3 billion.
Lenovo's PC division posted a pre-tax income of $368 million on revenue of $7.3 billion. The company sold 13.5 million PCs, a 7.1 percent year-on-year decline against an overall market decline of 12.8 percent. The company's overall share of the PC market stands at 20.6 percent, and its goal is to hit 30 percent within three years.
These layoffs, of course, aren't the only to hit the smartphone market this year. Microsoft cut 7,800 people from Nokia a few weeks ago, on top of thousands of layoffs in 2014. BlackBerry is continuing to make layoffs as it struggles to attract growth, and Qualcomm—a major supplier to the smartphone industry—is cutting around 4,500 jobs. It's increasingly clear that for every company that isn't Apple, the smartphone market is an increasingly hostile place to do business with intense competition and tight margins.
The PC market has been hit by the same pains, but it took decades for the boom to end and the squeeze to start. The smartphone market seems to be undergoing the same transformation but over a period of less than 10 years. Neither market is going to disappear; buyers are going to continue to want new PCs and non-Apple smartphones. But in the face of consistent downward pressure and struggles for profitability, it's hard to predict what these markets are going to look like or how manufacturers are going to make them viable businesses.
