Lenovo hopes to turn around China smartphone operation
Technology giant Lenovo Group plans to go on “full attack mode” in the Year of the Monkey to turn around its flagging smartphone operation in China and expand its enterprise business worldwide.
That upbeat assessment by chairman and chief executive Yang Yuanqing, however, seemed to provide little comfort to investors.
The world’s largest supplier of personal computers saw its share price fall 10.19 per cent -- the stock’s biggest drop in two years -- to close at HK$6.61 on Wednesday, after reporting mixed results in its fiscal third quarter which ended on December 31.
Lenovo delivered a surprise by posting a 19 per cent increase in net profit to US$300 million in the three months to December, up from US$253 million in the same period in 2014, on the back of a sweeping corporate restructuring that helped cut operating expenses.
So-called realignment actions announced in August, which included laying off 3,200 employees around the world, are projected to bring total savings of US$1.35 billion for Lenovo’s fiscal year to March.
Another surprise from Lenovo was an 8 per cent decrease in its fiscal third quarter revenue to US$12.91 billion, down from US$14.09 billion a year earlier, due to currency fluctuation and the tepid global demand in personal computers.
Consensus estimates by analysts projected Lenovo’s revenue last quarter at around US$13 billion.
“[Lenovo’s] fiscal third quarter profitability was above expectations, despite a slight shortfall in revenue given PC shipments were below consensus,” Jefferies equity analyst Ken Hui said in a report.
“We continue to see near-term value in the stock, despite long-term challenges.”
Research firm IDC estimated that Lenovo, which operates in more than 160 countries, took a record-high global market share of 21.4 per cent in the December quarter, despite a 4.5 per cent year on year decline in personal computer shipments to 15.39 million units.
Yang pointed out that Lenovo’s share in mainland China, the world’s biggest personal computer market, swelled to a record 40 per cent, which helped buttress the company’s longstanding argument that there was ample room for growth in a consolidating market.
Chief financial officer Wong Wai-ming said the commercial replacement cycle for personal computers is “expected to pick up as Windows 10 becomes more attractive to businesses around the world”.
But the likely make-or-break challenge this year for Yang at Lenovo is in the smartphone business, where more aggressive and nimble Chinese brands have expanded significantly on the mainland.
Strategy Analytics said last year’s top mobile phone brands on the mainland, the world’s biggest smartphone market, were Xiaomi, Huawei Technologies, Apple, Vivo and Oppo.
Neil Mawston, the executive director at Strategy Analytics, said Lenovo “may find it harder to return to the top five ranking in mainland China because it is still battling with the Motorola integration”.
Yang claimed that Lenovo had met its commitment for Motorola Mobility to break even four to six quarters since its US$2.91 billion acquisition. He vowed to turn around that business on the mainland this year by boosting marketing, delivering advanced smartphones and expanding distribution.
Lenovo executive vice-president Gerry Smith said the enterprise business was on track for more growth, following server sales to Chinese internet powerhouses Baidu, Alibaba Group and Tencent Holdings.