annual profit rises 29 percent as smartphone surge
offsets weak China
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[May 21, 2014] By
Lenovo Group Ltd, the world's fourth-biggest smartphone
vendor, saw net profit grow 29 percent for the business
year ended March, as strong smartphone sales helped
shore up weak growth in China.
Lenovo is expanding into smartphones to offset a decline in its
once-mainstay personal computers (PC) as consumers switch to mobile
devices, to the extent that it agreed in January to buy the Motorola
Mobility smartphone unit of Google Inc for $2.9 billion.
The company, which became a global brand in 2005 after buying the PC
unit of International Business Machines Corp (IBM), also in January
agreed to buy IBM's low-end server unit for $2.3 billion as another
way to combat slow PC sales.
Chief Executive Yang Yuanqing said the acquisitions would weigh on
finances in the near term. But observers will now be watching to see
whether a U.S. move to indict Chinese military officers for cyber
espionage on Monday will affect the acquisitions, as they are still
subject to U.S. regulatory scrutiny.
However, the acquisitions did not have an impact on net profit for
the year through March, which rose 28.7 percent to $817.2 million,
Lenovo said in a statement on Wednesday.
That was in line with the $819.7 million SmartEstimate of 34
analysts according to Thomson Reuters Eikon. SmartEstimate's give
greater weighting to estimates of the more accurate analysts.
Revenue rose 14.3 percent to $38.7 billion. Overall weakness in
China was offset by growth outside Lenovo's home market -
particularly Europe, the Middle East and Africa (EMEA) and the
Americas - as well as a surge in the company's mobile Internet unit,
home to its smartphone business.
"Lenovo's smartphone unit shipments achieved a record-high level of
over 50 million for the fiscal year, growing by 72 percent
year-on-year, driven by the strong growth in China and emerging
markets outside of China," the company said in the statement.
Shares of Lenovo were trading 2.5 percent higher after the results,
versus a near-flat benchmark Hang Seng Index. The stock has fallen
1.3 percent since the start of the year, recovering from a
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Analysts see tough times ahead for Lenovo, saying it may take at
least until the end of 2014 to make the acquisitions profitable. In
the meantime, smartphone leaders Samsung Electronics Co and Apple
Inc will only intensify competition, they say.
Sales in China, though still Lenovo's largest market accounting for
almost two-fifths of revenue, rose a mere 1.3 percent to $14.7
billion during the fiscal year.
That was offset by jumps of 27.1 percent for sales in the EMEA
region and 31.1 percent in the Americas. The mobile Internet and
digital home business unit saw an 86.1 percent rise to $5.7 billion.
"Stronger growth in ex-China markets should be a key driver of sales
in (the smartphone) segment," wrote Daiwa Capital Markets analyst
Steven Tseng in a note on Monday, before Lenovo's earnings.
(Editing by Christopher Cushing)
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