Lenovo beats estimates with 29% profit hike

BEIJING — Lenovo Group’s third-quarter profit jumped by nearly a third, beating estimates, as the world’s biggest maker of personal computers hoisted sales of smartphones in its bid to diversify out of the shrinking PC market.

The Chinese company reported that net income rose 29 per cent to US$265 million (S$335 million) for the October-December quarter.

That was before it agreed to spend US$5.2 billion on the smartphone and servers businesses in two acquisitions last month, a spree that Chief Executive Officer Yang Yuanqing warned would weigh on his company’s finances in the near term.

Both the businesses Lenovo bought currently lose money. “In the short term, (the deals) will have a negative impact on performance,” Mr Yang said in an interview after the earnings were announced yesterday. Lenovo later specified it would probably take three to five quarters to turn around the Motorola phone business it bought from Google for US$2.9 billion.

Lenovo has been aggressively pushing into smartphones and servers to offset the global decline in the desktop PC business as consumers switch to mobile devices. Along with the Motorola deal, it agreed to buy IBM Corp’s low-end-server unit for US$2.3 billion.

The net profit for October-December was well above the US$205 million Lenovo posted a year earlier, as well as a US$247.2 million consensus forecast on Thomson Reuters Starmine SmartEstimate.

Smartphone shipments rose 47 per cent to a record 13.9 million units in the quarter, the company said. It should expand its share of the global smartphone market, following the purchase of Motorola. The acquisition adds a brand established in the United States mobile market and will create the world’s No 3 vendor.

“We will relaunch and reintroduce the Motorola brand back to China and other emerging markets,” Mr Yang said. “We will compete in the premium market, but this is not enough, we will also compete in the entry level.”

Mr Yang last month said the plan to buy the IBM server business, which was announced Jan 23, would add a business with wider profit margins than PCs and give it about 14 per cent of that market.

In its mainstay computing business, the company has continued to perform well against the backdrop of falling demand.

The company maintained the No 1 spot in the PC sector with 18.1 per cent of the global market in the fourth quarter of last year, helped by a 6.6 per cent increase in shipments, research company Gartner announced last month. Hewlett-Packard was second with a 16.4 per cent share.

Worldwide PC shipments last year dropped to levels not seen since 2009, making it the worst decline in PC market history, Gartner said.