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Lenovo's Q1 profit grows 25 percent on PC, smartphone gains

Lenovo's smartphone shipments continue to soar in China

By Michael Kan
May 21, 2014 07:11 AM ET

IDG News Service - Lenovo's net profit grew 25 percent year-over-year in the first quarter as the Chinese company continued to make gains in the PC and smartphone markets.

During the period ended March 31, Lenovo's net profit reached US$158 million, up from $127 million a year earlier. The company's revenue also increased, by 19 percent to $9.4 billion.

Lenovo has risen to become the world's largest PC company, helped by sales in its home market of China. But the company is also focusing on tablets and smartphones to grow revenue. For the fourth straight quarter, Lenovo shipped more tablets and smartphones combined than it did PCs, the company reported on Wednesday. Its mobile devices business contributes 13 percent of company revenue.

Most of those smartphones are sold in China, but the shipment volume is so high that Lenovo already ranks as the fourth largest smartphone vendor in the world, according to research firm IDC.

Lenovo's smartphone presence is set to expand soon. In January, the company announced it would buy Motorola Mobility from Google, giving it an entry into the U.S. market.

The Motorola acquisition will dampen Lenovo's earnings in the short term, the Chinese company warned in February. However, Lenovo is confident it can turn around Motorola's business once the purchase is completed.

"We are confident we can turn it around in four to six quarters after the deal closes," said Lenovo CEO Yang Yuanqing in a conference call to discuss its results on Wednesday.

PCs still make up the bulk of Lenovo's business, generating 80 percent of its revenue in the first quarter. During the period, Lenovo saw strong shipments in markets outside of China, especially in Europe, Middle East and Africa.

In the U.S. market, Lenovo for the first time became the market's third-largest PC vendor, surpassing Apple in shipments, according to IDC.

In China, however, authorities are banning at least some government purchases of Windows 8.

Lenovo is the country's largest supplier of PCs with a 33 percent market share, according to the company. But during Wednesday's call, its CEO played down the government ban's potential sales impact.

"It doesn't really affect our business," he said. "We can allow our clients to choose between Windows 7 and Windows 8. It all depends on customer needs."

In January, it agreed to buy IBM's x86 server business and related maintenance services for $2.3 billion. The deal could make Lenovo a top player in the server market, according to analysts.

Financially, the acquisition will help Lenovo build a $5 billion enterprise business, with better profit margins over selling PCs, Lenovo's CEO said. The company aims to do this within one year.

Both the IBM and Motorola acquisitions are still waiting for approval from government regulators, Lenovo's CFO Wong Waiming added.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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