Lenovo Sees No Limit to Size for Phone, Server Purchases

Lenovo Group Ltd., the second-biggest personal computer maker, said the company’s cash reserves of more than $3 billion enable it to pursue an acquisition of almost any size to expand in new business areas.

The PC maker is most interested in adding assets to bolster its growing business for smartphones and tablets, and hardware such as servers and storage for business computing, Chief Financial Officer Wong Wai Ming said in a phone interview yesterday.

There is “no limit” for Lenovo when considering the size of targets, Wong said, without commenting on any specific opportunity. “We can actually look at literally every single opportunity because we obviously have the ability to finance.”

Chief Executive Officer Yang Yuanqing is pursuing a broad diversification strategy to help weather a global slump in demand for PCs. The move into smartphones, tablets, TVs and home entertainment systems is already paying off, as Lenovo reported a 90 percent jump in profit in the three months ended March, even as global PC shipments fell 13.9 percent. Now, Yang is looking to add another prong by boosting sales of the storage equipment and servers that run corporate networks.

Net income climbed to $126.9 million in the fourth quarter, from $66.8 million a year earlier, Lenovo said yesterday. That beat the $108.1 million average of eight analysts’ estimates compiled by Bloomberg. Revenue rose 4.5 percent to $7.83 billion.

Lenovo, which has its headquarters in Beijing and Morrisville, North Carolina, rose 3.8 percent to HK$7.66 at the close in Hong Kong trading, the highest level since March 28. The stock has climbed 9.1 percent this year, while the city’s benchmark Hang Seng Index has declined 0.2 percent.

Storage Devices

Lenovo plans to become a “relevant global player” in servers and storage devices within three years, Yang said at an earnings conference yesterday. The company last year allied itself with EMC Corp. to boost sales of storage equipment.

Talks with International Business Machines Corp. for Lenovo to buy parts of the Armonk, New York-based company’s server division broke down after the two sides couldn’t agree on a price, a person familiar with the discussions said May 3. The person indicated at the time that talks could still resume at a later date. Wong and Yang both declined to comment on IBM.

While Lenovo can become “a very decent player” in servers by organic growth alone, the company will be open to expansion via potential acquisitions, Yang said in the interview.

‘Opportunity-Driven Growth’

“If we can get a good deal, that’s definitely a shortcut but you can’t count on that,” Yang said. “That’s opportunity-driven growth. We still need to prepare the organic growth approach.”

Lenovo wanted to pay toward the low end of the $2.5 billion-to-$4.5 billion range that Bloomberg News reported on April 19, while IBM sought a substantially higher valuation, the person familiar said May 3, without providing details. In 2005, Lenovo purchased IBM’s personal-computer unit, helping it become the world’s second-largest PC manufacturer. The servers rely on similar x86 processors.

IBM was looking to divest a portion of its business with lower profit as it seeks earnings per share of $20 by 2015, compared with $15.25 last year. The company has had trouble selling its hardware products, with a 17 percent drop in the unit’s revenue last quarter.

Without commenting specifically on IBM, Wong said valuation is a key consideration for any purchase.

“We look at the valuation, does the acquisition add value to our business?” Wong said. “We obviously make sure that after buying the company that it will fully integrate into the Lenovo family so we will be able to leverage the full value of the asset that we acquire.”

— With assistance by Edmond Lococo

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