Lenovo Profit Beats Estimates as Top PC Maker Widens Lead

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Lenovo Laptop Computers
Lenovo Group Ltd. laptop computers sit on display at the company's headquarters in Beijing. Photographer: Tomohiro Ohsumi/Bloomberg

Lenovo Group Ltd. profit beat analyst estimates as the world’s biggest PC maker widened its lead over rivals. A strong U.S. dollar hurt sales.

Net income for the three months ended March fell 37 percent to $100 million, Lenovo said in a statement. That beat the $91.6 million average of analyst estimates compiled by Bloomberg. Revenue, which missed estimates, would have been higher if not for “significant currency impacts,” it said.

Personal computer shipments rose to an annual record with market share rising in all regions. The company also maintained its status as the biggest smartphone maker behind Samsung Electronics Co. and Apple Inc., while it broadens into new businesses including enterprise computing.

“Lenovo’s increasing market share in PCs helped them leverage scale to cut costs and boost margins,” said Vincent Chen, an analyst at Yuanta Financial Holding Co. in Taipei who rates the stock hold. “The rising U.S. currency hurt both demand and their pricing during the period.”

Lenovo rose 1.1 percent to HK$13.50 at the close in Hong Kong trading. The stock has climbed 32 percent this year, outpacing a 17 percent gain in the benchmark Hang Seng Index.

U.S. Navy

Sales for the period climbed 21 percent to $11.3 billion, missing the $12.1 billion average of analyst estimates. Growth would have been 28 percent if not for currency pressure, the company said in the statement Thursday.

Lenovo’s enterprise group, which includes last year’s purchase of the System X business from International Business Machines Corp., posted a pretax loss last quarter, it said. Full-year revenue at the unit was $2.63 billion, and is on track for $5 billion sales within a year, the company said today, reiterating previous guidance.

The U.S. Navy is evaluating whether it will keep using products from that IBM division because it is now owned by a Chinese company, U.S. Naval Institute News reported on its website May 5. Any effect would be minor, Chairman and CEO Yang Yuanqing said in an interview Thursday.

“U.S. government business only accounts for a very small portion of our total business,” Yang said. “Even though there is an issue there, it’s not a significant impact on our total business.”

PC Shipments

Currency fluctuations will keep the PC business “soft” this year, Yang said, adding Lenovo plans to combine software and cloud services with its hardware products in the future. Global PC shipments declined 5.2 percent during the quarter as the global replacement cycle faded, researcher Gartner Inc. said last month.

The quarter was Lenovo’s first full reporting period to include results from the $2.8 billion purchase of Motorola Mobility from Google Inc. That unit is on track to meet its previously-announced goal to turn profitable within four to six quarters of the acquisition, Yang said.

China, which accounted for 59 percent of Lenovo’s handset shipments last year, experienced its first quarterly decline in smartphone unit sales in six years with both Lenovo, and combined Lenovo-Motorola, losing share, IDC said this month.

Lenovo would exit the smartphone business if it couldn’t turn a profit within three to five years, Chief Financial Officer Wong Wai Ming said in an interview.

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