Lenovo reports quarterly profit of US$157m, sees smartphone unit on pace for turnaround in 2017

Lenovo chairman cautions of ‘challenging’ conditions, attributes quarterly result to buoyant personal computer, tablet and smartphone sales

PUBLISHED : Thursday, 03 November, 2016, 10:38pm
UPDATED : Thursday, 03 November, 2016, 11:15pm

Lenovo Group expects its struggling smartphone business to shape up by the middle of next year, following another profitable quarter for the Chinese technology giant in the three months to September 30.

“Market conditions remained challenging ... but Lenovo delivered a solid performance,” chairman and chief executive Yang Yuanqing told a media conference call on Thursday after the market close.

Lenovo, the world’s largest supplier of personal computers, reported a US$157 million net profit for the second quarter of its fiscal year to March, rebounding from a US$714 million loss in the same period last year.

That was in line with Daiwa Capital Markets’ US$156 million forecast, but missed the market consensus estimate of US$165 million.

Hong Kong-listed Lenovo attributed its second consecutive quarterly profit in its current fiscal year to stronger-than-expected personal computer, tablet and smartphone sales.

In addition, it booked a disposal gain of US$206 million from a sale-and-lease-back deal of an office building in Beijing.

The company’s loss in the September quarter last year followed its retrenchment of 3,200 employees and US$596 million in restructuring costs, as well as a one-time US$327 million write-off of its smartphone inventories.

Total revenue for Lenovo in the September-ended quarter was down 8 per cent to US$11.23 billion from US$12.15 billion a year earlier.

That was higher than Daiwa’s US$11.03 billion revenue forecast and the market consensus estimate of US$10.89 billion.

Yang said the company’s personal computer and smart devices operations maintained profitability on solid growth in North America and strong tablet demand in mainland China. Revenue in this business unit was US$7.80 billion, compared with US$6.99 billion in the June-ended quarter.

Data from research firm IDC showed that Lenovo shipped 14.51 million units worldwide in the third quarter to corner a 21.3 per cent global market share.

“We are on track to turn around this business in the middle of next year,” Yang said, referring to Lenovo’s smartphone operations.

He said the company’s new Moto Z smartphone and Moto Mods snap-on accessories showed a “positive signal” about market demand.

“We ramped up shipments to 60,000 units per week globally,” he said. “Its momentum is comparable to the [original] iPhone in its first three months of launch... We expect to sell 3 million units in the first 12 months.”

Lenovo’s mobile business posted revenue of US$2.04 billion in the September quarter, up from US$1.71 billion in the three months to June.

Its data centre business, however, remained flat quarter on quarter to US$1.08 billion.

“Looking forward, the market conditions may remain tough in the short term, but the group has seen the results of strong execution,” Yang said.

In a filing with the Hong Kong stock exchange, Yang said the company is “exploring smart home, smart office, smart health care and other areas”, while leveraging artificial intelligence, augmented and virtual reality, and other new technologies.

Lenovo’s share price fell to a four-month low of HK$4.82 in mid-day trading on Thursday before finishing the session 0.81 per cent to HK$4.87, its lowest close since reaching HK$4.74 on July 15.