Lenovo pushes expansion plan as profits remain solid

PC giant reports 30pc rise in profit in last quarter and predicts its aggressive strategies will push it closer to unseating industry leader HP

PUBLISHED : Friday, 17 August, 2012, 12:00am
UPDATED : Friday, 17 August, 2012, 6:00am

Unfazed by the sluggish global economy, Chinese technology giant Lenovo expects to further expand personal computer and smartphone sales this year after logging big gains in the quarter to June 30.

Lenovo's share price rose 6.28 per cent to finish at HK$6.60, its highest close since reaching HK$6.69 on June 22, after the company announced its April-June performance yesterday.

The world's second-largest supplier of personal computers posted a 30 per cent increase in net profit to US$141 million from a year earlier.

On a quarterly basis, net profit jumped 112 per cent from US$67 million in the three months ended March 31.

That result was better than an average forecast of US$131.2 million in a poll of 10 analysts by Thomson Reuters' I/B/E/S service.

In a conference call yesterday, Lenovo chairman and chief executive Yang Yuanqing attributed that healthy profit to balanced growth across all of the company's markets, customer segments and product lines.

Revenue climbed 35 per cent to US$8 billion from the previous year. Lenovo's core mainland market accounted for US$3.5 billion, or 44 per cent, of total worldwide sales in the quarter.

The company's gross profit margin dipped to 12 per cent from 12.5 per cent a year earlier, but that figure was still up from 10.8 per cent in the quarter to March.

"Although the economic environment is somewhat similar to the 2008-2009 downturn, Lenovo's results are much stronger because we have the right strategy and great execution," Yang said.

That strategy has put Lenovo closer to unseating industry leader Hewlett-Packard as the world's biggest supplier of personal computers in the last quarter.

Citing data from market research firm IDC, Yang said Lenovo achieved "its highest-ever quarterly [global] market share of 15 per cent". That nearly matched HP's 15.5 per cent market share in the same period.

Yang said Lenovo targeted "healthy profitability" even as it focused on further expanding personal computer sales on the mainland, other emerging markets and mature markets led by the United States.

He said the company was optimistic about its entry into the new category of "ultrabooks" that run Microsoft's Windows 8 operating system.

Lenovo, which was founded in Beijing in 1984, is also betting big on the growth potential of its fledgling Mobile Internet and Digital Home (MIDH) division, which was established in January last year to compete against other consumer electronics brands in smartphones, media tablets and internet-linked "smart" televisions.

"MIDH is now a billion-dollar business," said Yang, adding that Lenovo became the No 2 smartphone brand on the mainland in the quarter to June.

But Bernstein Research senior analyst Alberto Moel said: "Lenovo's product-level positioning is heading in a direction that is likely to make it more difficult to expand margins".

Early this month, Lenovo announced a broad partnership with US-based technology firm EMC that Yang said would enable the computer maker to expand its reach in the world's server and storage systems markets.