By Juro Osawa
HONG KONG--Chinese personal-computer giant Lenovo Group saw its
fiscal third-quarter net profit rise 30% from a year earlier thanks
to strong sales of PCs and smartphones in China.
Lenovo's solid quarterly results, which beat analysts'
expectations, come after the PC maker unveiled plans for two big
acquisitions in the U.S. In late January, Lenovo said it plans to
buy Google Inc.'s Motorola Mobility handset business for $2.91
billion, just a week after it announced a deal to buy International
Business Machines Corp.'s low-end server business for $2.3 billion.
Analysts have warned that those deals may hurt Lenovo's balance
sheet over the next few years. Motorola's net loss widened to $928
million last year from $616 million in 2012, according to
Lenovo.
Lenovo, which last year overtook Hewlett-Packard Co. as the
world's biggest PC maker by shipment volume, said on Thursday net
profit for the three months ended Dec. 31 rose 30% to $265.3
million from $204.9 million a year earlier, while revenue rose 15%
to $10.79 billion from $9.36 billion. Its earnings beat the $244
million average net-profit forecast of 15 analysts surveyed by
Thomson Reuters. In the second quarter ended Sept. 30, Lenovo
posted a 36% jump in net profit from a year earlier.
Lenovo's revenue and profit are relatively solid among PC makers
at a time when the industry is struggling to cope with weak demand
for desktop and laptop PCs. Even so, analysts and investors are
paying more attention to Lenovo's road map for Motorola and IBM's
low-end server unit. If both deals clear regulatory hurdles,
Lenovo's management capacities will likely be stretched over the
next few years as it tries to integrate two big businesses in very
different areas. In particular, investors are concerned that
Motorola's unprofitable business will weigh on Lenovo's
earnings.
For Lenovo, the two proposed acquisitions are part of its
efforts to find new sources of growth. The company has said that on
top of its PC business, it is building two new pillars of growth
for the next decade: smartphones and tablets being one, and
enterprise products such as servers and storage being the
other.
In the past few years, Lenovo has demonstrated an ability to
increase revenue and squeeze out profits even as most PC makers saw
their sales decline.
The company, which became known internationally when it bought
IBM's PC business in 2005, has been trying to make up for the PC
market's expected slowdown by selling more smartphone and tablets
in China and other emerging markets. Last year, Lenovo was the
world's fifth-largest smartphone vendor with a 4.5% market share by
shipment volume, according to research firm IDC.
Lenovo said strong sales of mobile devices contributed to its
revenue growth in the latest quarter. The company said last year
that its smartphone business in China was profitable, without
disclosing figures. The company has also said that handsets aren't
yet contributing much to its overall earnings because it is
spending more on marketing and sales channels overseas to expand
the business.
Write to Juro Osawa at juro.osawa@wsj.com
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