Beijing: Lenovo Group Ltd posted a surprise 19 per cent increase in quarterly profit as stringent cost controls and international push countered the impact of a faltering Chinese economy and stalling demand.
The world’s largest PC maker reported net income of $300 million (Dh1.1 billion) in the fiscal third quarter ended December, compared with analyst estimates for earnings to fall to $242.5 million. Sales fell 8 per cent, the first decline in more than six years.
Lenovo is cutting $1.35 billion from annual costs and eliminating 3,200 jobs to help withstand intensifying competition in smartphones as it boosts its share of the shrinking PC sector and expands on servers. The company needs to turn its phone unit profitable this year to meet a promise of ending losses within six quarters of buying the Motorola brand from Google Inc.
“Going forward, we should look at its enterprise and server business. That could be an area for profitmaking,” Ricky Lai, an analyst at Guotai Junan International Holdings Ltd., said before the results.
International focus
The shares have fallen 10.4 per cent this year, compared with a 14 per cent drop in the Hang Seng index.
Chief Executive Officer Yang Yuanqing has said the company will try to grab greater market share in the US and Europe this year, pivoting away from intensifying competition back home in China, where the economic growth is slowing. It’s also aiming for $5 billion of annual sales from an enterprise division it expanded in 2014 by buying International Business Machines Corp’s server division.
Focusing internationally helped Lenovo lift the proportion of smartphone shipments from outside China to 83 per cent from 59 per cent. Expansion into markets from India to the US helped shore up margins even as its global market share slipped about 1.5 percentage points to 5.1 per cent in the period.
“The group’s mobile business regained momentum from the previous quarter and achieved its first time operational break even,” Lenovo said in a statement. If charges including those related to the Motorola deal were taken into account, the business would have had a pretax loss of $30 million.
Windows 10
While Lenovo is increasing market share in PCs, industrywide PC shipments plummeted 10.6 per cent in the fourth quarter according to research firm IDC. Lenovo managed to grow its share of that market to 21.4 per cent versus runner-up Hewlett-Packard Co’s 19.9 per cent.
The company on Tuesday predicted a recovery in PCs as more businesses upgrade to adopt Microsoft Corp’s Windows 10 software.
Lenovo is also banking on global demand for the servers that underpin cloud computing services to prop up its enterprise division. The business it acquired from IBM supplies servers to the massive datacentres built by internet giants from Alibaba Group Holding Ltd to Google Inc that host mobile applications and corporate information technology.
