News Column

Lenovo profit rises 25% on market share gains

May 21, 2014

By David Ranii, The News & Observer (Raleigh, N.C.)

May 21--Lenovo's growing market share in PCs and mobile devices propelled it to a 25 percent increase in fiscal fourth-quarter profit.

Revenue for the fiscal fourth quarter that ended March 31 rose 19 percent to $9.36 billion, $360 million more than analysts polled by Bloomberg News were expecting. Net income totaled $158 million, up from $127 million a year ago but short of the $163.6 million anticipated by analysts.

The world's No. 1 PC maker has outpaced the overall PC market for 20 consecutive quarters and has continued to post gains in recent quarters despite an industrywide contraction triggered by consumers gravitating to tablets and smartphones.

"We drove strong growth across all product lines," CEO Yuanqing Yang told analysts during a conference call. "Now we are No. 4 in both tablets and smartphones worldwide."

Lenovo smartphones aren't available in the U.S. market, but the company sells them in more than two dozen countries accounting for roughly half of the world's population.

Slack demand for PCs has pushed Lenovo to diversify into other devices -- a move that it intends to accelerate by spending more than $5 billion on two pending acquisitions.

The company has agreed to acquire Google's struggling Motorola handset business for $2.91 billion, a move that will provide an entree into the U.S. smartphone market and make it the No. 3 smartphone maker worldwide.

China-based Lenovo has a headquarters in Morrisville that employs about 2,200 workers and about 300 workers at a manufacturing facility in Guilford County.

The company also has agreed to pay $2.3 billion to acquire a line of servers from IBM. When that deal is complete, the company's local presence is expected to nearly double.

Yang said Lenovo expects to turn around the Motorola business just as it did IBM's PC business, which was losing hundreds of millions of dollars when Lenovo purchased it in 2005. He said the Motorola turnaround would take four to six quarters.

Yang projected that sales of Lenovo smartphones and tablets will rise to 100 million this year, up from 60 million last year, with Motorola contributing to that growth in the latter portion of the year.

As for the IBM server business Lenovo is acquiring, Yang said that its profit margins are higher than Lenovo's margins in the PC arena. When the deal is completed, Lenovo will vault from No. 6 to No. 3 in servers.

Yang said that the twin acquisitions "will impact our short-term performance, but we are very firm that we should do this to secure our sustainable growth."

Lenovo expects both acquisitions, which are awaiting approval from U.S. regulators, to be completed in the third quarter of this year.

Jay Parker, president of North American operations, said in an interview that the Motorola and IBM deals involve iconic brands that will have their greatest impact in the territory he oversees.

"This year looks like a huge inflection point for us in the U.S. market," he said.

In the first quarter of the calendar year, Lenovo jumped from No. 4 to No. 3 in U.S. PC shipments -- behind HP and Dell -- in the rankings issued by market research firm IDC. Rival market research firm Gartner ranked Lenovo No. 4 behind Apple but reported that the gap between the two narrowed considerably.

Parker said that Lenovo's growth in the U.S. market in the latest quarter was powered by double-digit sales gains and increased market share across each of its three major customer segments -- large corporations, small and midsize businesses and consumers.

Moreover, he said, the average sales price of Lenovo PCs purchased by consumers rose 10 percent.

"It shows our brand is building the way we want it to," Parker said. "We're taking advantage of the innovative products we have."

Lenovo's stocklike American depositary receipts closed Wednesday at $24.45, up 88 cents. Its ADRs have been flat so far this year.

For all of 2014, Lenovo generated revenue of $38.7 billion, up 14 percent. Profit rose 29 percent to $817 million.


Ranii: 919-829-4877


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