Lenovo on track to post strong 2014 earnings despite world market doldrums

PUBLISHED : Friday, 10 April, 2015, 12:16pm
UPDATED : Friday, 10 April, 2015, 12:16pm

Lenovo Group is poised for strong earnings in its financial year to March after widening its lead among the world’s top suppliers of personal computers last quarter, despite the overall decline in the industry.

In separate preliminary estimates released today, technology research firms IDC and Gartner said global personal computer shipments fell as the surge in corporate replacements – driven by Microsoft’s retirement of its Windows XP operating system in April last year – began to fade.

IDC said Lenovo, the world’s largest supplier of personal computers, grew its shipments by 3.4 per cent to 13.39 million units in the quarter to March. That provided the company with a 19.6 per cent global market share, up from 17.6 per cent in the same period last year.

Gartner calculated a higher 5.7 per cent increase to 13.58 million units, which gave Lenovo an 18.9 per cent share worldwide from 17 per cent a year earlier.

“PCs remain at the heart of our business, delivering 65 per cent of our revenue and record income last quarter [ended December 31] of almost US$500 million,” Lenovo chairman and chief executive Yang Yuanqing said in a statement to the South China Morning Post.

“Given industry consolidation, Lenovo’s consistent focus on innovation … and our ongoing momentum, we are confident that PCs will continue to be a great engine of strong, profitable growth.”

Yang pointed out that Lenovo has led worldwide personal computer shipments for the quarter to March and the past two consecutive years.

Lenovo, which operates in more than 160 countries, saw its total quarterly revenue sail past the US$14 billion mark for the first time in the three months to December. IDC estimated that it seized a historical high personal computer market share of 19.9 per cent in that quarter on the back of record global shipments of 16 million units.

In a report, Bernstein Research senior analyst Alberto Moel said: “Although the soft PC market outlook has put pressure on the top-line growth of Lenovo, we believe Lenovo can continue to scale up and expand margins on its legacy mobile [personal computer] business.”

Bernstein has forecast Lenovo, which has dual headquarters in Beijing and North Carolina in the United States, will post a net profit of US$101 million in its financial fourth quarter ended March 31 on US$12.8 billion in revenue.

Estimated net profit for its financial year to March is US$840 million from US$817 million a year ago, while total revenue is US$47.77 billion from US$38.71 billion in the previous financial year.

Posting another year of healthy earnings could help ease the sting of the recent controversy over adware that Lenovo preloaded on millions of its laptops. The company said it has ceased such installations since January, after security experts warned that the adware left machines exposed to hackers and other malicious programmes.

At least six US-based law firms have each started conducting separate investigations for potential class-action lawsuits against Lenovo and adware supplier Superfish.

Both IDC and Gartner said Lenovo and Hewlett-Packard were the ones among the world’s top five personal computer suppliers to post shipment growth last quarter. Those that lost market share were Dell, Asus and Acer.

IDC estimated that global personal computer shipments declined 6.7 per cent to 68.48 million units last quarter, down from 73.39 million in the same period last year. It said that was the lowest recorded volume since the first quarter of 2009.

Gartner calculated that shipments dropped 5.2 per cent to 71.73 million units from 75.69 million the previous year.

“Pricing pressure is bringing many premium SKUs [stock keeping units] into formerly mid-level pricing tiers,” said Jay Chou, the senior research analyst at IDC’s Worldwide PC Trackers division.

SKUs here represents the tracked inventory of personal computers in stores and other distribution channels.

“As more vendors find it increasingly difficult to compete, we can expect additional consolidation in the PC market,” Chou said.