Lenovo Revenue Plummets 19% as Motorola Woes Weigh on Profit

  • Sales slump amid market share losses, shrinking PC industry
  • Company on pace to achieve $1.35 billion of annual savings

Lenovo CFO on Slowing PC Sales, Q4 Earnings

Lenovo Group Ltd. fourth-quarter revenue slumped 19 percent and profit missed analysts’ estimates as the company struggled against falling PC sales and plunging mobile shipments in China and North America.

Sales were $9.13 billion in the three months ended March, Beijing-based Lenovo said in a filing on Thursday, missing the average of analyst projections by more than $1 billion. Net income of $180 million compares with expectations for $184.9 million.

Lenovo has been struggling to revive the Motorola smartphone business it bought for $2.8 billion in 2014 as its devices lose market share in China and growth in the global industry slows. The company is focusing more on overseas markets and cutting costs after slipping outside the top five globally, compounding the challenge of a shrinking PC industry that is hurting its biggest business by sales.

“We continue to see that Lenovo holds limited advantages and lacks a coherent strategy in a slowing and competitive smartphone market,” analysts led by  Ken Hui at Jefferies Hong Kong Ltd. wrote in a report. “Management should explore more drastic options.”

Lenovo shares fell as much as 3.2 percent to HK$4.82 in Hong Kong. The company’s ADRs fell 5 percent in New York overnight.

Lenovo swung to a full-year loss of $128 million compared with net income of $829 million a year earlier.

“This year was a big write-off,” said Chris Yim, an analyst at BOCOM International Holdings Co. “Fiscal 2017 is going to be profitable, but the thing is with the current PC market, and we don’t know what the current mobile lineup is going to be like, we’re not sure what kind of profit to expect."

Lenovo struck the Motorola deal to bulk up in smartphones at a time when the Chinese market was surging. That growth has since slowed, compounding the challenge of turning around the business. The company needs to build a smartphone business that can withstand industry fluctuations like it does in PCs, Chief Financial Officer Wong Wai Ming.

“It probably will take a little bit longer for us to build a foundation, not only in the rest of the world but also in China,” the CFO said in an interview with Bloomberg TV.

The company said the markets where it operates will remain challenging in the short term. Shipments of smartphones fell 13 percent compared to a year earlier to 66 million handsets thanks to slumps in China and the US.

Chief Executive Officer Yang Yuanqing is eliminating jobs while seeking to make the company’s devices more competitive. The company said cost savings of $690 million were achieved in the second half and it’s on pace to achieve its annualized target of $1.35 billion.

Yang said the company has had problems integrating Motorola into the Lenovo business and that’s an issue they need to address. 

Before it's here, it's on the Bloomberg Terminal.