Lenovo Profit Jumps a Better-Than-Expected 23 percent

(The News & Observer/MCT) -

Lenovo’s gains in the intensely competitive PC and smartphone markets enabled the company to post a 23 percent jump in quarterly profit and exceed analysts’ expectations.

Meanwhile, CEO Yang Yuanqing told Bloomberg News that the company still anticipates completing later this year the two major deals it announced in January: a $2.3 billion acquisition of a line of servers from IBM, and a $2.9 billion purchase of Google’s Motorola handset unit. Those moves are designed to accelerate the company’s diversification beyond PCs.

“We are making progress, but we definitely still have some things to do with multiple government agencies,” Yang told Bloomberg, without specifying details.

The world’s No. 1 PC maker is based in China, but has a headquarters in Morrisville, N.C., where it employs about 2,200 workers. Given that Lenovo is a Chinese company, the deals face scrutiny with regard to national security.

Jay Parker, president of North American operations, noted in an interview that Lenovo has successfully navigated these waters in the past. That includes its 2005 acquisition of IBM’s PC business, which led to the company’s presence in the Triangle, and the formation of a joint venture with data-storage provider EMC two years ago.

“We know how it works. We have a very good track record,” Parker said.

Lenovo’s stocklike American depositary receipts closed Thursday at $29.13, down 27 cents. Its ADRs are up 19 percent this year.

Lenovo reported Thursday that, in the fiscal first quarter that ended in June, its revenue rose 18 percent from a year ago to $10.4 billion.

Profit totaled $214 million, up from $174 million. The consensus among analysts polled by Bloomberg was that net income would total $203.6 million.

Lenovo has been the clear leader in PC sales for five consecutive quarters, and it continues to gain market share. In the quarter that ended in June, its worldwide PC shipments rose 15.1 percent in a market that was essentially flat, according to market-research firm Gartner.

Yang told analysts during a conference call that the company’s sales have become much more geographically balanced.

“Only three years ago, China was almost … half of our revenue, but now, even though our China business keeps growing, it’s just over one-third of our revenue,” he said.

The company’s sales in North and South America totaled $2.2 billion, accounting for 22 percent of revenue.

Yang also said the company became No. 1 in smartphone sales in China in the first quarter and the company enjoyed “hyper growth” in smartphone sales in southeast Asia, eastern Europe and Latin America.

“Lenovo is doing very well on the mobile side,” Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong, told Bloomberg News. “They have a rapidly growing business in terms of sales, although it’s still not growing as much in terms of profit.”

Lenovo doesn’t sell smartphones in the U.S. market today, but that would change with the acquisition of the Motorola business.

The company’s U.S. PC shipments rose 20.3 percent in the latest quarter, according to Gartner. It ranks third in the U.S. market behind HP and Dell.

“Our revenue growth in North America was right at 20 percent,” Parker said. “Our earnings growth in North America was over 40 percent.”

“The products that we are bringing out are being well received in the market across the board, in both the consumer and the commercial space,” Parker said.

Among the products that are selling well, Parker said, are the Thinkpad X1 Carbon, the “thinnest, lightest 14-inch notebook in the market,” and the Yoga “convertibles” that function as either a laptop or a tablet.

In North America, Lenovo’s PC sales were focused solely on business customers until 2008, but today, one-quarter of its PC sales are to consumers.

Parker said that there’s a misconception that Lenovo is gobbling up market share by churning out “low-priced, entry-priced” products.

“That really couldn’t be further from the truth,” Parker said. In the consumer arena, he added, “we have the highest share of PCs above $1,000 of anybody in the market.”