LDN - Business

PC maker Lenovo books fourth-quarter profit surge, says production unaffected by trade war

[May 23, 2019] By Sijia Jiang

HONG KONG (Reuters) - Tech giant Lenovo Group Ltd on Thursday reported a market-beating three-fold surge in quarterly profit helped by strong personal computer (PCs) sales, and said its production plans had not been affected by the ongoing Sino-U.S. trade war.

Still investors, worried that the conflict was morphing into a technology cold war, dumped shares of Asian tech companies, with Lenovo's stock price falling as much as 6.3% to its lowest in nearly four months.

Dual-headquartered in China and the United States, the world's largest PC maker on Thursday said it is "well poised to navigate the turbulence in the geopolitical and macro-economic environment".

The United States has sought to address what it believes is imbalanced trade with China, unleashing waves of tit-for-tat import tariffs on billions of dollars worth of goods.

Lenovo said it was less exposed to the U.S. market than competitors and that most of its products are not subject to the new tariffs.

"We definitely don't want to see this situation," Chairman and Chief Executive Officer Yang Yuanqing told Reuters in an interview. "We've always said we wish the two governments can get the agreement as early as possible."

Yang said Lenovo has contingency plans to shift production to its centers outside China - such as in India, Mexico, Hungary, Brazil and the United States - but so far has not made such adjustments.

PC GROWTH

Lenovo's net profit in the fourth quarter ending March rose more than three fold to $118 million from a year prior when it suffered a writedown. The result compared with the $91.4 million average of seven analyst estimates compiled by Refinitiv.

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The Lenovo logo is seen in this illustration photo January 22, 2018. REUTERS/Thomas White/Illustration

"The growth strategy of PC and Smart Device (PCSD) focusing on commercial, high-growth and premium segments has paid off in delivering record revenue for the fiscal year," Yang said in a statement.

PCSD revenue rose 10%, with PC shipments growing 9%. Overall revenue rose 10% to $11.71 billion, in line estimates.

The global PC shipments declined 4.6% during three months, showed data from consultancy Gartner.

For the full year, Lenovo swung to a profit of $597 million, from a loss of $189 million a year earlier, when it had written down $400 million due to U.S. tax reform.

Annual revenue rose to a record $51 billion, which Lenovo attributed mainly to record sales at its PCSD business, which accounts for three quarters of the total.

Lenovo's mobile business, which it has been trying to turn around, continued to lose money on an annual basis. Its nascent data center division also booked a loss but revenue grew 37%.

Going forward, Chief Operating Officer Gianfranco Lanci said he expects Lenovo's mobile business to maintain pre-tax profitability, and that the data center business would focus on growing profit rather than revenue.

(Reporting by Sijia Jiang; Writing by Sayantani Ghosh; Editing by Anshuman Daga and Christopher Cushing)

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