Business

Lenovo's quarterly profits soar 98 percent; sales hit record $5.9B

Posted August 18, 2011 6:51 a.m. EDT

— Lenovo, the world's No. 3 personal computer manufacturer, said Thursday that its quarterly profit nearly doubled on strong emerging market sales.

The results come as Lenovo expands into mobile Internet, competing with Apple Inc. and other foreign rivals, and in developed markets with an acquisition this year in Germany and a joint venture in Japan.

Lenovo operates its headquarters in Morrisville, but most of its operations and business is done in China where the company was launched. The financials were disclosed in Beijing. Lenovo's stock is traded on the Hong Kong exchange.

Profit for the three months ending June 30 was $108 million, or 1.11 U.S. cents per share, up 98 percent from a year earlier, Lenovo said. It said sales rose 15 percent from the same period last year to a quarterly record of $5.9 billion and global market share hit a high of 12.2 percent.

Lenovo, which acquired IBM Corp.'s PC unit in 2005, overtook Taiwan's Acer Group this year to become the third-largest PC vendor, according to International Data Corp.

After spending the past two years focusing on expanding sales, Lenovo is changing strategy to give equal emphasis to profits, said CEO Yang Yuanqing in a conference call with reporters.

"We will continue to invest in capturing growth in emerging markets while focusing on improving profitability," Yang said.

Lenovo provided the following geographic breakdown:

China

"Lenovo China recorded US$2.8 billion in consolidated sales in the first fiscal quarter, accounting for 47.9 percent of the Company’s worldwide sales. During the quarter, Lenovo further strengthened its number-one position in China by 2.3 points, which resulted in an industry-leading market share in China of 31.7 percent, widening the gap between Lenovo and its major rivals. Lenovo’s PC shipments in China increased 23.4 percent year-over-year in the quarter, exceeding the overall industry increase of PC shipments in China of 14.3 percent."

Emerging Markets

"In Emerging Markets, Lenovo’s consolidated sales totaled US$1 billion for the first fiscal quarter, or 17.5 percent of the Company’s worldwide sales. Lenovo’s PC shipments across the region increased dramatically by 46.5 percent in the quarter, more than three-times faster than the industry growth rate in this region of 14.7 percent year-over-year. Lenovo saw market share gains throughout the region for a total market share of 6.9 percent, highlighted by the Company’s record-high double-digit market share in India at 10.8 percent after a 3.6 points gain in that country during the first quarter year-over-year."

Mature markets (Including the U.S.)

"Mature Markets posted US$2.1 billion in consolidated sales, or 34.6 percent of the Company’s worldwide sales during the first fiscal quarter. Despite a year-over-year 9.4 percent decrease in the industry’s PC shipments across the region, Lenovo grew its PC shipments in the quarter by 8.5 percent. Of particular note, Lenovo’s PC shipments in North America grew 30.8 percent, compared to the market that fell four percent, allowing the Company to pick up 1.9 points of market share there. In Japan, Lenovo increased PC shipments by 14 percent year-over-year, in a market that overall grew at 2.9 percent for the quarter."

Tablet challenges in China

Lenovo entered wireless Internet last year and has launched smartphones and Web-linked tablet computers in competition with Apple, South Korea's Samsung Electronics Corp. and Taiwan's HTC Corp. It unveiled a low-priced smartphone last week to target developing markets.

The company's tablet shipments in China have lagged behind Apple's popular iPad but Yang said that was due partly to supply constraints. He said the company is aiming to achieve a 20 percent share in that market within a year.

Lenovo said PC shipments in Africa, Latin America and other emerging markets rose 45.7 percent in the latest quarter over a year earlier.

In China, which provides nearly half of Lenovo's sales, PC shipments rose 23.4 percent in the quarter.

Shipments in North America rose 30.8 percent while those in Japan were up 14 percent.

In a reflection of Lenovo's growth in mature markets such as Europe and the United States, they provided $77 million of the quarterly profit, compared with a $9 million loss a year earlier, said chairman Liu Chuanzhi.

"This is a major improvement," Liu said on the conference call.

Lenovo announced its acquisition of Germany's Medion AG, a maker of multimedia products and consumer electronics, in June. It said that would make it the second-largest PC vendor in Europe's biggest computer market.

Also this year, Lenovo launched a joint venture with Japan's NEC Corp., expanding its presence in the Japanese market.

In June, the company announced that Yang, the CEO, bought 797 million shares in Lenovo from its parent company, Legend Holdings Ltd. That made him its second-largest owner after the holding company, with an 8 percent stake.

Liu said that reflected Lenovo's desire for its top managers to have an ownership stake in the company, which he said would improve performance. Executives on Thursday's conference call did not respond to a question about whether further share purchases by management were expected.