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Lenovo Profit Rises 34% on Avoiding PC Slump, Smartphones

By Bloomberg News
January 31, 2013 4:48 AM EST 1 Comments

Lenovo Group Ltd. (992), the world’s second-biggest maker of personal computers, reported a 34 percent jump in third-quarter profit after increasing its market share and boosting smartphone sales.

Net income climbed to $204.9 million in the three months ended Dec. 31, from $153.5 million a year earlier, the company said in a statement yesterday. Excluding a $20 million one-time gain, the figure was in line with analysts’ estimates. Sales climbed 12 percent to $9.36 billion.

Lenovo’s PC shipments rose 8 percent in the period, the only increase among the world’s four biggest suppliers, as it boosted North American consumer sales amid slowing global demand. The company has also developed mobile devices including smartphones and tablets that have helped it lure customers from Apple Inc. and Samsung Electronics Co. in China.

“Positive surprises came largely from the mobile Internet and digital home unit,” said Jonathan Ng, a Singapore-based analyst at CIMB-GK Pte, who rates Lenovo outperform. The company continues to see “strong momentum” in these areas, he said.

Revenue from China, Lenovo’s biggest market, rose 17 percent to $4.1 billion in the quarter and accounted for 43 percent of total sales. North America revenue climbed 8 percent to $1.3 billion, or about 14 percent of its global tally.

Lenovo, which has its headquarters in Beijing and Morrisville, North Carolina, fell 2.8 percent to close at HK$8.07 in Hong Kong. It has climbed 15 percent this month, surpassing the 4.7 percent gain for the city’s Hang Seng Index.

Accounting Gain

Net income was boosted by the one-time gain, which was related to the elimination of an accounting provision following the completion of a takeover. That let Lenovo surpass the $184 million average of 12 analysts’ profit estimates compiled by Bloomberg. Excluding that gain, earnings were “pretty much in line” with expectations, CIMB’s Ng said.

Lenovo Chief Executive Officer Yang Yuanqing reiterated that the company intends to boost pretax margins by 1 percentage point over three years. In the three months ended Dec. 31, Lenovo had a pretax profit margin of 2.6 percent.

“Our PC business is healthy and will continue to get stronger,” Yang said on a conference call yesterday. “Beyond the PC, we have built a strong foundation for the PC-plus business, which is growing even faster.”

The company introduced touchscreen handsets in Russia, India, Indonesia, Vietnam and the Philippines last year following the debut of its first model in China in 2010. In China, Lenovo ranked second in smartphone sales in the three months ended Sept. 30, according to market researcher IDC.

Windows Phone

Lenovo is considering offering smartphones running Microsoft Corp. (MSFT)’s Windows Phone 8 to expand its range of handsets beyond Google Inc.’s (GOOG) Android, Yang said in an interview yesterday.

“We have a very good relationship with Microsoft,” Yang said. “If the market and customers can accept Windows Phone, we will provide the product to them.”

The PC-maker is assessing potential acquisition targets and strategic alliances to boost its mobile business, including a deal with BlackBerry, the company formerly known as Research In Motion Ltd. (RIM), Chief Financial Officer Wong Wai Ming said in a Bloomberg News interview on Jan. 24.

“We are looking at all opportunities -- RIM and many others,” he said. Waterloo, Ontario-based BlackBerry announced the name change yesterday.

Earlier Purchases

Lenovo previously used acquisitions to boost sales, including buying International Business Machines Corp.’s PC division in 2005. This month, it completed a $147 million purchase of CCE, a Brazilian maker of computers, mobile phones and tablets.

Lenovo has a “healthy balance sheet,” which it will use to look for opportunities for acquisitions to accelerate growth, Wong said on the conference call yesterday. The company will continue to invest in the mobile area, he said, without supplying details.

Global PC sales fell 4.9 percent in the quarter through December as users shifted to tablets and smartphones, according to Gartner Inc. Lenovo was surpassed as the biggest PC maker in the period by Hewlett-Packard Co. (HPQ) The Chinese company topped the rankings for the first time in the preceding three months.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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