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Lenovo Profit Rises 13% as Share Overtakes Hewlett-Packard

Lenovo Group Ltd. (992) boosted second- quarter profit 13 percent as it expanded market share to overtake Hewlett-Packard Co. (HPQ) in personal-computer shipments.

Net income climbed to $162 million in the three months ended Sept. 30 from $143.9 million a year earlier, Lenovo said in a statement today. That beat the $158.4 million average of eight analyst estimates compiled by Bloomberg.

Chief Executive Officer Yang Yuanqing built the Chinese company into the world’s largest PC maker last quarter as it accounted for 15.7 percent of global PC shipments, overtaking Hewlett-Packard’s 15.5 percent, market-research firm Gartner Inc. said last month. Yang now wants to extend that dominance to smartphones, and the unit making mobile devices almost tripled sales through the first six months of this year.

“We’re positive on their development in smartphones,” Christine Wang, a Taipei-based analyst at Daiwa Capital Markets, said by phone today. “Lenovo will outperform the PC industry, but it’s still slowing down. So if the company can deliver performance on the smartphone side, that is pretty good.”

Revenue at Lenovo, whose headquarters are in Beijing and Morrisville, North Carolina, rose 11 percent to $8.67 billion from $7.79 billion. That compared with the $8.65 billion average of 13 analyst estimates compiled by Bloomberg.

Computer Acquisitions

Lenovo’s shares pared declines in Hong Kong trading and closed down 2.7 percent at HK$6.58, after falling as much as 3.9 percent before the announcement. The stock has climbed 27 percent this year, surpassing the 17 percent gain for the city’s benchmark Hang Seng Index.

Lenovo, which bought the PC division of International Business Machines Corp. (IBM) in 2005, used acquisitions to help boost sales in the past year. The company bought control of Medion AG (MDN), an Essen, Germany-based computer maker, and the PC unit of Tokyo-based NEC Corp. (6701) in 2011.

With the release of Microsoft Corp. (MSFT)’s new Windows 8 software, Lenovo sees an increase in global PC demand, even with “softness” in the world economy, Yang said on a conference call today.

The PC maker is also stepping up development of smartphones, tablets and Internet-ready TVs to widen its product line for consumers to challenge Apple Inc. and Samsung Electronics Co.

India, Indonesia

The company’s mobile Internet and digital home unit, which makes smartphones, boosted sales to $1.31 billion during the first six months of 2012 from $496.7 million a year earlier.

The unit, which previously sold phones only in China, added four new markets last quarter: India, Indonesia, the Philippines and Vietnam, Yang said.

“To expand smartphones to other markets, emerging markets, is definitely our strategy,” he said. “We are confident that will work.”

Revenue from China, Lenovo’s biggest market, rose 22 percent to $7.34 billion in the first six months, making up 44 percent of the total. While the China PC market has been “soft,” it is a short-term situation, Yang said.

Sales in North America climbed 7.1 percent to $2.41 billion, comprising about 15 percent of global revenue for the period. In Europe, the Middle East and Africa, sales gained 31 percent to $3.38 billion, or 20 percent of the total.

In the Asia-Pacific and Latin America regions, sales increased 24 percent to $3.55 billion.

“Lenovo is poised to extend its global lead and grow further,” Don See, a Singapore-based analyst at Standard Chartered Plc, wrote in a Nov. 2 report. “Lenovo achieved its 14th sequential quarter of market share gains when its growth rate outpaced that of competitors in the PC industry.”

To contact Bloomberg News staff for this story: 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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