Lenovo Reports Third Quarter 2012/13 Results

  Lenovo Reports Third Quarter 2012/13 Results

  *Records in pre-tax income of US$246 million and earnings of US$205 million
  *Record quarterly sales of US$9.4 billion
  *Record 14.1 million PC shipments and record 15.9 percent global market
    share
  *Basic EPS of 1.99 US cents, or 15.42 HK cents
  *Net cash reserves of US$4.2 billion (as of December 31, 2012)

Business Wire

HONG KONG -- January 30, 2013

Lenovo Group today reported results for its third fiscal quarter ended
December 31, 2012. In its best quarter ever, Lenovo continued to outgrow the
market in all geographies with record sales, pre-tax income and earnings.
Lenovo continued its push towards becoming the world’s leading PC maker and
emerging global leader in PC Plus devices, with another quarterly sales record
of $9.4 billion, an 12 percent year-over-year increase.

For 13 consecutive quarters, Lenovo has been the fastest growing major PC
company. Lenovo was also recognized by IDC as the world’s third largest maker
of “smart connected devices,” such as tablets, PCs and smartphones. At the
same time, Lenovo had another quarter of record pre-tax income at US$246
million, demonstrating that such rapid growth is being achieved while profits
increase.

Lenovo’s third quarter earnings were also a record at US$205 million, an
increase of 34 percent over the last year, with gross margin at 11.8 percent.
Gross profit for the third fiscal quarter increased 15 percent year-over-year,
to US$1.1 billion, while operating profit for the third quarter was US$243
million, a 26 percent increase year-over-year. Basic earnings per share for
the third fiscal quarter was 1.99 US cents, or 15.42 HK cents. Net cash
reserves as of December 31, 2012, totaled US$4.2 billion.

The Company’s ‘Protect and Attack’ strategy – protecting the two profit pools
of global commercial PC and the China businesses, while attacking three high
growth opportunities in emerging markets, global consumer and PC Plus
products, such as smartphones, tablets and smart TVs – continued to deliver
results. This quarter, Attack businesses delivered 50 percent of the Company’s
revenues, a significant increase from four years ago when the Company first
launched the strategy and attack revenues were 32 percent. Further
demonstrating the Company’s balance, its Mobile Internet and Digital Home
(MIDH) revenues, which includes its smartphone, tablet and smart TV
businesses, accounted for a record 11 percent of Company revenue this quarter,
up 77 percent year over year. And for the first time, its smartphone business
in China became profitable.

During the third fiscal quarter, Lenovo’s worldwide PC shipments grew 7.9
percent to an all time high of 15.9 percent* marketshare, in a difficult
market that was down 7.8 percent year-over-year. This was the 15^th quarter in
a row the Company grew faster than the industry. Lenovo gained share points in
every geography and every product category and in every respective customer
segment.

While the Company’s organic growth continues to drive the majority of its
success, shareholders should note that Lenovo has closed the joint venture and
acquisitions announced in the previous two quarters, including its strategic
partnership with EMC that includes a joint venture in EMC’s Iomega business;
its acquisition of CCE, a leading PC+company in Brazil, and its acquisition of
Stoneware, a US-based cloud computing company. Further, the Company reports
that integration of all mergers and acquisitions transactions announced in the
last three years are well on-track, and in many cases ahead of schedule.

Lenovo recently realigned its product development and supply chain
organizations to create two new groups: the Lenovo Business Group, which will
focus on mainstream PCs, mobile internet and digital home products; and the
Think Business Group, which will focus on Think-branded products targeting
high-end consumers and enterprises. Today, Lenovo is twice as large and much
more diverse than it was when its existing structure was established over four
years ago. That structure was ideal in supporting Lenovo’s business when it
was mostly focused on its China PC and global commercial PC business. Today,
the Company has built strong consumer, mobile and emerging markets businesses
globally, so the change was proactively initiated to drive continued
performance across all of these businesses, stay ahead of consumer demands,
while driving speed, agility and innovation.

The recently concluded Consumer Electronics Show (CES) in Las Vegas continued
to show that innovation is a significant competitive advantage and future
growth driver for Lenovo. The Company was recognized with a record 50 awards
at CES, including several “Best in Show” acknowledgments. A robust pipeline of
innovative products including the IdeaCentre Horizon - a 27-inch table top PC;
ThinkPad Helix - Lenovo’s latest convertible PC designed for business
professionals; and the Intel-powered, K900 smartphone are well positioned to
continue to stoke new customer demand and drive Lenovo’s performance.

"With the strong execution of our 'Protect and Attack' strategy, Lenovo has
not only achieved record revenue, profit and global PC market share last
quarter, but also our smartphone and tablet businesses have delivered hyper
growth. Even more, our worldwide tablet and China smartphone businesses have
become profitable," said Yang Yuanqing, chairman and CEO, Lenovo Group. "As we
continue into the PC Plus era, Lenovo has already laid a solid foundation. Our
new organization will provide the structure to elevate our diversified
business and drive it to the next level. We are confident that we can win
through differentiation and will be the innovation leader in the PC Plus era."

GEOGRAPHIC OVERVIEW

  *Lenovo China achieved US$4.1 billion in consolidated sales in the third
    fiscal quarter, an increase of 17 percent year-over-year, accounting for
    43 percent of the Company’s worldwide sales. Lenovo’s PC Plus strategy
    fueled outstanding performance in China with 83 percent MIDH revenue
    growth and a revenue contribution in China of 22 percent. The Company
    achieved an important milestone with China smartphone achieving
    profitability for the first time. Lenovo grew its number-one PC market
    share position in China, the world’s largest PC market, to 36.7 percent,
    up 1.4 points year-over-year. Lenovo’s PC shipments in China grew two
    percent year-over-year in the quarter, a solid result given that the
    overall China PC market was down two percent.
  *In the Asia Pacific/Latin America region, Lenovo achieved 11.3 percent
    market share in the third fiscal quarter, up marginally year-over-year. In
    a PC market that was down nine percent year-over-year, the Company grew
    its PC shipments across the region by four percent. Lenovo continued its
    run as the leading PC vendor in Japan. Consolidated sales across the
    region totaled US$1.7 billion for 18 percent of Lenovo’s worldwide sales,
    while operating margins continued to be profitable.
  *Lenovo in Europe Middle East & Africa grew PC shipments by 25.5 percent
    and became the second largest PC seller in this region, with 11 percent
    market share, an increase of 3.2 share points year-over-year. This was the
    Company’s first ever quarter to reach the number two position in the
    region. These achievements were made despite the headwind of overall
    industry decline in shipments of 11 percent across the region. The Company
    had consolidated sales in the third quarter of US$2.3 billion, a
    year-over-year improvement of 17 percent, good for 25 percent of Lenovo’s
    total worldwide sales.
  *Lenovo’s PC shipments in North America in the third fiscal quarter
    increased 11 percent year-over-year, in a market that fell by about seven
    percent. In this environment, the Company gained 1.5 share points to a
    record high market share of nine percent. Consolidated sales grew eight
    percent year-over-year to US$1.3 billion in the third quarter, or 14
    percent of Lenovo’s total worldwide sales. Also, for the first time in
    North America, Lenovo made significant inroads into the high-end consumer
    space, taking a large slice of sales of Windows 8 powered convertible
    devices – including 30 percent share of the US$700-and-above market and 45
    percent share of the US$900-and-above market.

PRODUCT OVERVIEW

  *In Laptop PCs, the Company’s worldwide shipments during the third fiscal
    quarter were up 9.5 percent year-over-year, helping Lenovo gain 2.6 share
    points and achieve market share of 15.8 percent. Across the industry,
    laptop shipments were down 8.6 percent year-over-year. Lenovo’s laptop
    computers continued to be the largest contributor to the Company’s sales
    worldwide, generating 52 percent of Lenovo’s total sales revenue.
    Consolidated sales for Lenovo’s laptop PC business worldwide in the third
    fiscal quarter totaled US$4.8 billion, an increase of eight percent
    year-over-year. During the third quarter, Lenovo took the industry by
    storm, announcing a new family of convertible devices, touch optimized for
    Windows 8: the 11” and 13” Yogas, IdeaPad Lynx and ThinkPad Twist. Lenovo
    also announced ThinkPad X1 Carbon Touch, adding touch experience to the
    industry’s leading business-class Ultrabook, and ThinkPad Twist, a
    business-ready device that puts a new spin on the traditional convertible
    tablet.
  *Lenovo’s consolidated sales of Desktop PCs worldwide increased one percent
    year-over-year in the third fiscal quarter to US$2.8 billion, or 30
    percent of Lenovo’s total sales revenue. The Company’s desktop PC
    shipments worldwide in the third quarter increased 5.8 percent
    year-over-year worldwide, compared to an overall industry decrease of 6.8
    percent. As a result, Lenovo gained 1.9 share points year-over-year and
    achieved a record-high market share of 16.1 percent. During the third
    quarter, Lenovo announced its new IdeaCentre Q190, the world’s smallest
    full-function desktop PC – measuring just 22mm (0.86 inches) wide – and
    the latest additions to the C-series all-in-one (AIO) family, featuring
    affordable, but powerful performance, and multimedia capabilities designed
    for immersive entertainment.
  *As China’s second-largest provider of smartphones and tablets, Lenovo’s
    MIDH group continues to rapidly build its business. With consolidated
    sales of US$998 million, a 77 percent year-over-year increase in the third
    fiscal quarter, MIDH contributed 11 percent to the Company’s overall
    sales. Year over year, Lenovo gained 4.7 share points in the China
    smartphone market in the third quarter for an overall market share of 12.3
    percent in China. This business achieved profitability as well. During the
    third quarter, Lenovo announced that it would begin selling smartphones in
    Russia, in addition to previously announced India, Indonesia, Philippines
    and Vietnam. These five countries plus China, represent 44 percent of the
    world’s population, and give Lenovo a strong sales presence in these
    important emerging economies.

ABOUT LENOVO

Lenovo (HKSE: 0992) (PINKSHEETS: LNVGY) is a US$30 billion personal
technology company – one of the top two PC makers in the world and an emerging
PC Plus leader – serving customers in more than 160 countries. Dedicated to
building exceptionally engineered PCs and mobile internet devices, Lenovo’s
business is built on product innovation, a highly-efficient global supply
chain and strong strategic execution. Formed by Lenovo Group’s acquisition of
the former IBM Personal Computing Division, the Company develops, manufactures
and markets reliable, high-quality, secure and easy-to-use technology products
and services. Its product lines include legendary Think-branded commercial PCs
and Idea-branded consumer PCs, as well as servers, workstations, and a family
of mobile internet devices, including tablets and smart phones. Lenovo, a
global Fortune 500 company, has major research centers in Yamato, Japan;
Beijing, Shanghai and Shenzhen, China; and Raleigh, North Carolina. For more
information see www.lenovo.com.

*See IDC data, 4Q 2012

                                                        
FINANCIAL SUMMARY
For the third quarter ended December 31, 2012

(in US$ millions, except per share data)
                                                                 
                                                                 
                                       Q3      Q3      Y/Y  
                                        12/13     11/12     CHG
Sales                                   9,359   8,372   12   %
Gross Profit                            1,101   954     15   %
Gross Profit Margin                     11.8  %  11.4  %  0.4  pt
Operating Expenses                      (858  )  (761  )  13   %
Expenses-to-Revenue Ratio               9.2   %  9.1   %  0.1  pt
Operating Profit                        243     193     26   %
Other Non-Operating Expenses            3       (1    )  NA   
Pre-tax Income                          246     192     28   %
Taxation                                (46   )  (38   )  22   %
Profit for the period                   200     154     30   %
Non-controlling interests               5       (1    )  NA   
Profit attributable to equity holders   205     153     34   %
EPS (US cents)
Basic                                   1.99      1.50      0.49
Diluted                                 1.96    1.46    0.50 

Contact:

Lenovo Group
Hong Kong:
Angela Lee, +852 2516 4810
angelalee@lenovo.com
or
Beijing:
Amy Shi, +8610 5886 8982
shixy2@lenovo.com
or
U.S.:
Brion Tingler, +1 917-528-1992
btingler@lenovo.com
 
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