second quarter revenue decline damps optimism over
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[November 06, 2014]
By Gerry Shih
BEIJING (Reuters) - Lenovo Group Ltd
reported quarterly revenue that missed analyst estimates, with a decline
in smartphone sales curbing investor optimism about the world's biggest
maker of personal computers (PCs) turning into a force in mobile
Lenovo's earnings came at a time of unprecedented competition in
China's smartphone market, with rivals including fast-growing Xiaomi
Inc, now the world's No. 3 handset maker. At the same time, the
company is pulling ahead in the global PC industry.
The Beijing-based company now has a PC market share of 20 percent
and has extended its lead over Hewlett-Packard Co <HPQ.N> and Dell
Inc [DI.UL], according to IDC research.
Sales of laptop and desktop computers rose 0.9 percent and 6.4
percent respectively in July-September, helping revenue rise 7
percent to $10.5 billion. That compared with an $11.35 billion
estimate of 13 analysts according to Thomson Reuters SmartEstimate,
which gives greater emphasis to more accurate analysts.
But mobile device sales fell 6 percent to $1.4 billion in a rare
stumble for Chief Executive Yang Yuanqing, who has been determined
to muscle his way to the top of the global smartphone market.
"Smartphone revenue was not that exciting, it was a little bit of a
problem," Yang told Reuters in an interview after the results. He
attributed the fall primarily to an accounting procedure pushing
revenue from a significant shipment of phones in late September to
the following quarter.
Shares of Lenovo shed 5.1 percent after the results, compared with a
0.2 percent fall in the benchmark Hang Seng index .
Nomura analyst Leping Huang said a reduction in handset subsidies
from Chinese mobile phone networks have adversely affected Lenovo's
"All the smartphone vendors suffer from it," Huang said. "But Lenovo
fundamentally looks quite good."
Lenovo said net profit rose 19 percent to $262 million in the second
quarter, exceeding the $260 million analyst estimate. It also
announced a dividend payment of HK$0.06 ($0.0077) per share.
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SMARTPHONES AND SERVERS
The PC market has been shrinking since the advent of tablet
computers and smartphones. Lenovo has responded by diversifying,
making two multi-billion-dollar acquisitions in quick succession for
Google Inc's Motorola handset unit and IBM's low-end server
Last week Lenovo closed its $2.91 billion deal for Motorola, gaining
an iconic albeit faded brand that still has a presence in North
America and Europe, two markets Lenovo covets.
Speaking on an earnings conference call on Thursday, Yang pledged to
prioritize sales growth at Motorola without looking to cut expenses.
He said he expected Motorola to turn a profit in four to six
quarters, and that margins in Lenovo's smartphone business will be
higher after integrating the U.S. unit.
The company also on Thursday named Yahoo! Inc co-founder Jerry Yang
to its board of directors. Yang, who is also a director at Alibaba
Group Holding Ltd, formerly served as a Lenovo board observer.
($1 = 7.7525 Hong Kong dollar)
(Editing by Christopher Cushing)
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