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Lenovo Profit Rises on Office Computer Demand, Acquisitions

Lenovo Profit Rises on Office Computer Demand, Acquisitions
Lenovo sold more computers including Thinkpad laptops to businesses in the U.S. and emerging markets, defying an industry slump that hurt sales at rivals Hewlett-Packard Co. and Acer Inc. Photographer: David Paul Morris/Bloomberg

Lenovo Group Ltd., the world’s second-biggest maker of personal computers, posted a 54 percent increase in third-quarter profit as orders for office computers jumped and acquisitions in Germany and Japan boosted sales.

Net income climbed to $153 million in the three months ended Dec. 31, or 1.46 cents a share, from $99.7 million, or 0.98 cent, a year earlier, Lenovo said in a statement today. That beat the $139.8 million average of nine analysts’ estimates compiled by Bloomberg. Revenue rose 44 percent to a record $8.4 billion.

Lenovo sold more computers including Thinkpad laptops to businesses in the U.S. and emerging markets, defying an industry slump that hurt sales at rivals Hewlett-Packard Co. and Acer Inc. Chief Executive Officer Yang Yuanqing is stepping up development of smartphones and tablets to widen the Chinese company’s product line for consumers, following Apple Inc. and Samsung Electronics Co.

“We remain bullish on Lenovo’s outlook for more market share gains,” Kirk Yang, who rates the stock “overweight” at Barclays Capital in Hong Kong, wrote in a report today. Non-PC products such as smartphones and televisions will help boost the company’s business, he wrote.

Lenovo rose 3.8 percent to HK$6.49 in Hong Kong trading, the highest closing price since May 2008. The stock has climbed 25 percent this year, compared with the 14 percent gain for the city’s benchmark Hang Seng Index.

“Smart TV”

Lenovo’s shipments of smartphones in China grew four times last quarter, compared with three months earlier, while sales of tablets also increased, CEO Yang said in a conference call today, without giving unit numbers. The company will introduce a “Smart TV” product in the country in April, he said.

Hewlett-Packard accounted for 16.3 percent of the global PC market last quarter, declining from 19.4 percent a year earlier, according to research company IDC. Lenovo increased its market share to 14 percent from 10.3 percent, ahead of Dell, which gained to 12.9 percent from 12 percent, according to IDC.

Lenovo and Dell were the only vendors of the world’s top four to post gains in shipments last quarter, according to IDC. Global PC shipments fell 0.2 percent to 92.7 million, it said.

Revenue in Lenovo’s mature-markets division, which includes operations in the U.S., Japan and western Europe, jumped 81 percent to $3.6 billion. The Chinese company acquired control of Medion AG, a Essen, Germany-based computer maker, and the PC unit of Tokyo-based NEC Corp. last year.

Looking at Acquisitions

“The U.S. corporate business is very important for them,” Alberto Moel, who rates Lenovo shares “market perform” at Sanford C Bernstein & Co. in Hong Kong, said before the earnings. Demand was boosted by companies replacing aging computers, and lower prices offered by Lenovo, Moel said.

Lenovo will be looking at acquisitions to accelerate growth, Chief Financial Officer Wong Wai Ming said on the conference call today. The company expects to grow its business faster than the overall PC industry, he said.

Lenovo, which bought the PC division of International Business Machines Corp. in 2005, said revenue from China rose 30 percent to $3.5 billion, or 42 percent of the company’s total. Sales in its emerging-market division, which includes India, Brazil and Russia, rose 13 percent.

The company, with headquarters in Beijing and Morrisville, North Carolina, aims to become the world’s biggest PC maker, CEO Yang said in October.

Gross profit margin, or the percentage of sales left after deducting production costs, declined to 11.4 percent last quarter from 12.2 percent three months earlier, Lenovo said. The company was affected by higher prices of hard-disk drives caused by an industry shortage, CEO Yang said. The shortage in hard-disk supplies will continue this quarter, he said.

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