Chinese personal-computer maker Lenovo Group Ltd. 0992.HK +0.68% posted a 36% increase in profit in its latest quarter and struck a confident note about the company's prospects, citing robust tablet demand and recovering PC sales.
Lenovo's solid results come amid lingering concerns about the PC industry's future. Despite some signs of recovery, traditional PC makers are struggling to sell their desktop and laptop computers. Lenovo, the world's largest PC maker, managed to sell more PCs globally during the quarter, while increasing the average selling prices. Lenovo is also trying to stave off sluggish demand for PCs by expanding its smartphone business outside China.
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The Lenovo Group logo is seen in a Sept. 5, 2013, file photo. Bloomberg News
Lenovo, which overtook Hewlett-PackardCo. HPQ -0.33% in PC shipments earlier this year, on Thursday posted a net profit of $219.7 million for the three months ended in September, helped by tighter cost control as well as strong sales of PCs and mobile devices in China. This was above its net profit of $162.1 million a year earlier and exceeded the average forecast of $201 million from analysts surveyed by Thomson Reuters.
Lenovo's upbeat earnings cheered investors. The Hong Kong-listed company's share price rose 2.1% to close at 8.60 Hong Kong dollars (US$1.11).
In the quarter, Lenovo's operating margin from its China PC business, which has been a stable source of profit in recent years, rose to 6.8% from 6% a year earlier. Margins rose as the company sold more premium products such as tablet-laptop convertible devices, and as demand for PCs from corporate clients remained strong.
The continued strength of the company's business in China more than made up for a decline in the operating margin in the Americas region, which includes North America and South America. In Latin America, its focus on affordable products amid fierce price competition put pressure on its margins.
Overall, Lenovo's group revenue for the fiscal second quarter rose 13% to US$9.77 billion from US$8.67 billion, boosted by robust sales of smartphones and tablet computers.
During an earnings conference call, Lenovo Chief Executive Yang Yuanqing said he was confident about the PC industry's outlook.
"The sharpest decline in PC sales are over," he said. With demand for PCs recovering and tablet sales growing fast, "the market environment is in Lenovo's favor," he said.
The latest market data from research firm IDC, released last month, also included some encouraging signs. Lenovo's PC shipments rose 2.2% from a year earlier, while HP and Dell Inc. also recorded a slight increase in their shipments. However, shipments by Taiwanese PC makers Acer Inc. 2353.TW +2.23% and Asustek Computer Inc.2357.TW +0.44% plummeted 35% and 34%, respectively.
Over the past year, Lenovo has been focusing on selling smartphones in more markets outside China. The company is the second-largest smartphone vendor in China, behindSamsung Electronics Co. 005930.SE +1.96%
In the quarter through September, Lenovo said its smartphone shipments increased 78% from a year earlier to 12.3 million units. Outside China, Lenovo now sells smartphones in several countries in Asia, Latin America, the Middle East and Africa. The company said sales were strong in Indonesia, India, Russia and Vietnam in the quarter.
Mr. Yang said Lenovo now aims to start selling smartphones in mature markets such as the U.S. sometime next year.
Lenovo's ambitious expansion in the smartphone market has spurred expectations for possible acquisitions. Last month, people familiar with the matter told The Wall Street Journal that Lenovo was considering a bid for struggling Canadian smartphone makerBlackBerry Ltd. BB.T +0.44% Still, BlackBerry's effort to find a buyer failed earlier this month and the company said it would continue as a public company with new leadership.
During the conference call, Lenovo Chief Financial Officer Wong Waiming declined to comment on any specific deals, but said the company would be alert for any opportunities for acquisitions. While Lenovo has designed strategies to pursue growth on its own, the company also has the financial capability and management resources to seek and complete acquisitions when the right opportunities emerge, he said.
Write to Juro Osawa at [email protected]
