Lenovo forms PC venture with Fujitsu as quarterly profit rebounds

Chinese hi-tech giant buys 51pc stake in Japanese firm’s personal computer business in deal worth about US$154m

PUBLISHED : Thursday, 02 November, 2017, 5:05pm
UPDATED : Thursday, 02 November, 2017, 10:47pm

Lenovo Group has rebounded from a surprise loss in the previous quarter to a US$139 million net profit in the three months ended September 30, lifted by signs of stability in the global personal computer industry.

The Hong Kong-listed company also announced it has agreed to buy a 51 per cent stake in the personal computer business of Fujitsu, in a cash transaction worth HK$1.2 billion (US$153.8 million), creating a formidable new joint venture in Japan.

Shares in Lenovo, the world’s second largest personal computer supplier, rose as high as HK$4.82 in early afternoon trading before closing at HK$4.68, up 2.1 per cent.

Its net profit during the period marked a significant recovery from the US$72 million loss in the quarter to June, and easily outshone the US$26 million consensus estimate from a Bloomberg survey of analysts.

On a year-on-year basis, Lenovo’s fiscal second-quarter profit was down from the US$157 million profit recorded in the same period last year amid increased operating expenses.

Revenue grew 5 per cent to US$11.8 billion from US$11.2 billion a year earlier, surpassing the market’s US$11.3 billion consensus estimate.

“Lenovo has entered a new phase of growth, and we should see sustained improvement in the following quarters,” chairman and chief executive Yang Yuanqing said in conference call on Thursday.

Yang pointed out that Lenovo “maintained industry leading profitability” in the global personal computer market.

Lenovo shipped 14.5 million personal computers worldwide in the quarter ended September 30 to corner a 21.6 per cent share of the global market, behind market leader HP’s 22.8 per cent share, according to estimates from research firm IDC.

After struggling the previous quarter, Lenovo said its personal computer and smart devices group was again profitable in all its geographic markets, generating the bulk of quarterly revenue with US$8.4 billion in sales.

Gartner analyst Mika Kitagawa said “business PC demand, led by Windows 10 upgrades, continued to drive PC shipments across all regions” in the quarter to September.

Business PC demand, led by Windows 10 upgrades, continued to drive PC shipments across all regions [in the quarter to September]
Gartner analyst Mika Kitagawa said

Lenovo, Fujitsu and the Development Bank of Japan announced on Thursday the creation of a joint venture that will focus on research, development, design, manufacturing and sales of personal computers and tablets for the global market.

Called Fujitsu Client Computing Limited, Lenovo will be the venture’s largest shareholder. The bank has agreed to buy a minority stake of five per cent from Fujitsu.

Lenovo chief financial officer Wong Wai-ming added the Fujitsu deal, which will close in six months, stregthens Lenovo’s leadership position in Japan’s personal computer market, the third-largest worldwide.

Yang said the company’s efforts to turn around its slumping mobile business group remained a work in progress. That business group, which includes the company’s Moto and Lenovo-branded smartphones, recorded a 10 per cent year-on-year increase in smartphone shipments to 15.3 million units in the quarter to September.

Lenovo’s data centre business group, which includes a range of servers, storage systems, networking products, software and services, recorded steady gains in North America and the Europe-Middle East-Africa markets, the company said.