Lenovo Earnings Rise 30% as PC Maker Boosts Market Share

Lenovo Profit Rises 30% as It Closes in on Hewlett-Packard
Lenovo shares surged as much as 5 percent as the results reflect efforts by chief executive officer Yang Yuanqing to meet his goal of making Lenovo the world’s largest PC producer. Photographer: Daniel Acker/Bloomberg

Lenovo Group Ltd., the world’s second-biggest maker of personal computers, posted a 30 percent increase in first-quarter profit as it expanded market share to almost pull even with leader Hewlett-Packard Co.

Net income climbed to $141.4 million in the three months ended June 30, from $108.8 million a year earlier, Lenovo said in a statement today. That beat the $133.5 million average of eight analysts’ estimates compiled by Bloomberg.

Lenovo shares surged 6.3 percent as the results reflect efforts by Chief Executive Officer Yang Yuanqing to meet his goal of making Lenovo the world’s largest PC producer. The company increased shipments of computers including Thinkpad laptops by almost 15 percent in the quarter, even as industry levels fell 0.1 percent, according to researcher Gartner Inc.

“The PC market is not doing well globally, but Lenovo’s market share gains are offsetting that weakness,” Kirk Yang, Hong Kong-based head of Asia technology research at Barclays Plc, said in a telephone interview today.

Lenovo, whose headquarters are in Beijing and Morrisville, North Carolina closed at HK$6.60 in Hong Kong trading, the highest since June 22. Lenovo has risen 27 percent this year, surpassing the 8.3 percent gain for the city’s Hang Seng Index.

“This set of results reaffirmed Lenovo is executing well, and continues to deliver above industry growth despite the tough macro environment,” Jonathan Ng, an analyst at CIMB-GK Pte., wrote in a report today. “Lenovo will tighten its costs to ensure a balanced growth.”

Expanding Share

Lenovo’s market share rose two percentage points to 14.7 percent in the quarter, almost matching Hewlett-Packard’s 14.9 percent, Stamford, Connecticut-based Gartner said July 11.

Revenue rose 35 percent to $8.01 billion, compared with the $8.12 billion average of 13 analyst estimates compiled by Bloomberg.

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

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

Total phone sales in China reached almost 7 million units, surpassing the company’s PC volume in its home market for the first time, Yang said on a conference call today. Lenovo’s smartphone market share in China reached 13 percent, making it the second-largest supplier there, he said.

The company isn’t focusing on the profitability of the mobile phone business for now and expects it to break even in the next few quarters, Yang said. The new business eventually will deliver operating margins similar to its core PC business, he said.

“Even with a weak macro-economic environment, and the PC market seeing negative growth, these new areas still shine, especially smartphones and emerging markets,” Yang said. “We will seize these growth opportunities, and continue to grow faster than the market.”

Largest Market

Revenue from China, Lenovo’s biggest market, rose 24 percent to $3.52 billion in the quarter, making up 44 percent of its total.

Lenovo’s “penetration in China’s countryside and lower-tier cities is higher than any of the others,” Christine Wang, a Taipei-based analyst at Daiwa Capital Markets, said in an interview yesterday. “In lower-tier cities, the PC growth rate is still double-digit, which is why Lenovo is able to beat the industry average.”

The company, which previously reported sales outside China under the Mature Group and Emerging Markets Group, provided a new geographic breakdown in the latest results.

Sales in North America climbed 6.8 percent to $1.18 billion, comprising about 15 percent of global revenue for the period. In Europe, the Middle East and Africa, sales gained 62 percent to $1.58 billion, or 20 percent of the total

In the Asia-Pacific and Latin America regions, sales increased 72 percent to $1.72 billion.

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