Lenovo Group Ltd (0992.HK) reported quarterly revenue rose 3 percent to $10.7 billion, below analyst expectations, as the world’s No. 1 PC maker pointed to “severe challenges” in selling smartphones in China and PCs and tablets around the world.

The result compared with expectations of $11.29 billion, according to analysts polled by Thomson Reuters SmartEstimates. The Beijing-based company’s net profit plummeted 51 percent year-on-year to $105 million, but was ahead of a 59 percent drop expected by analysts.

Chief executive Yuanqing Yang said Lenovo was facing the “toughest market environment in recent years” and would restructure its lagging smartphone business at a one-time cost of $600 million.

About 3,200 people in non-manufacturing positions would also be cut to save $650 million in the second half of 2015.

(Reporting by Gerry Shih; Editing by Richard Pullin)

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