Lenovo Boosts Profit 60% on Medion, NEC PC Acquisitions

Lenovo Group Ltd. (992), the world’s second-biggest maker of personal computers, posted a 60 percent increase in fourth-quarter profit as acquisitions in Germany and Japan helped boost shipments and market share.

Net income climbed to $67 million in the three months ended March 31 from $42 million a year earlier, Lenovo said in a statement today. That beat the $63.1 million average of nine analyst estimates compiled by Bloomberg. Revenue rose 54 percent to $7.5 billion.

Lenovo sold more computers including Thinkpad laptops to businesses in the U.S. and emerging markets, bringing it closer to Chief Executive Officer Yang Yuanqing’s target of becoming the world’s largest PC maker. Yang also helped boost sales by acquiring control of Medion AG (MDN), an Essen, Germany-based computer maker, and the PC unit of Tokyo-based NEC Corp. (6701) last year.

“Solid revenue growth was lifted by above-industry volume growth and maiden contributions from NEC and Medion,” Jonathan Ng, a Singapore-based analyst at CIMB, said in an e-mail. “Profit is growing in line with top-line growth, reflecting that Lenovo is able to maintain its margin despite increased investment in mobile devices.”

Smartphones, Tablets

Lenovo shares fell 1.5 percent to close at HK$6.78 in Hong Kong trading, compared with a 1.3 percent drop in the city’s benchmark Hang Seng Index.

Yang is also increasing development of smartphones, tablets and Internet-ready TVs to widen the company’s consumer lineup and challenge Apple Inc. (AAPL) and Samsung Electronics Co.

Lenovo will work with more carriers in China as it aims to triple smartphone shipments this fiscal year, Yang said at a briefing in Hong Kong today. The company shipped more than 5 million smartphones in the year ended March, he said.

PC shipments jumped 44 percent in the three months ended in March, compared with a 4.6 percent rise in industry shipments in the period, the company said.

Lenovo expects to increase revenue by between 10 percent and 20 percent this fiscal year, helped by demand in emerging markets, Chief Financial Officer Wong Wai Ming said. The company will also post improvements in its profit margins, he said.

“We are very confident we can outperform the market,” Wong said in an interview in Hong Kong. The 37 percent gain in annual revenue last fiscal year included contributions from the acquisitions of Medion and NEC, he said.

Market Share

Lenovo expanded its global PC market share to 13.4 percent in the period from 9.6 percent a year earlier, market researcher IDC said last month. The company, with headquarters in Beijing and Morrisville, North Carolina, trails only Hewlett-Packard Co. (HPQ)’s 18 percent share, according to IDC.

The biggest sales gain for the period was in Lenovo’s mature-markets division, which included the effect of Yang’s acquisitions. Revenue from the U.S., Japan and Western Europe jumped 85 percent to $3.4 billion in the quarter.

Demand from corporate clients in Europe and the U.S. have slowed because of the “macroeconomic situation” and as some customers wait for products with Microsoft Corp.’s Windows 8 operating system, Yang said today.

Lenovo is seeking to acquire “high-growth” businesses and companies that will help improve profitability, Wong said.

“We will continue to look for acquisitions,” Wong said. “We are looking at a lot of opportunities,” he said, declining to identify targets or provide a timeframe.

Lenovo, which bought the PC division of International Business Machines Corp. in 2005, said revenue from China rose 32 percent to $2.9 billion in the quarter, or 39 percent of the company’s total.

Sales in its emerging-market division, which includes India and Russia, rose 43 percent to $1.2 billion.

-- Edmond Lococo and Mark Lee, with assistance from Andy Clarke and Paula Sailes in Hong Kong. Editors: Dave McCombs, Terje Langeland

To contact Bloomberg News staff for this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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