China's Lenovo Group Ltd reported its Q3 earnings today. The figures show a profit jump of nearly a third, beating estimates with record shipment numbers and extending its lead as number one PC maker.
The net income of $265.3 million shows a rise of 29 per cent for the October to December quarter but this is before the firm's decision to make two acquisitions in January, including the notable purchase of Motorola Mobility from Google, costing a total of $5.2 billion. We can also clearly see Lenovo's effort to push into the servers market. The firm's other acquisition in January was for IBM Corp's low-end server unit for $2.3 billion.
Lenovo's CEO Yang Yuanqing warned, in an interview after the release of its financial report, that: "In the short term, (the deals) will have a negative impact on performance." Both of the businesses recently acquired by Lenovo currently lose money and the firm specifically highlighted that the Motorola acquisition will take an estimated three to five quarters to show any upside.
In the Q3 earnings announcement Yang Yuanqing commented on the impact of the acquisitions saying: "I am confident that from day 1 after closing, these businesses will quickly begin contributing to our performance and develop into pillars for long-term, sustainable growth."
The third quarter generated revenue of $10.8 billion for Lenovo is a 15 per cent jump from the same quarter in the year before and also the first time the firm has surpassed the $10 billion revenue mark. Shipments of 32.6 million devices in the third quarter equates to around five devices every second. The company shipped a total of 17.3 million smartphones and tablets as well as 15.3 million PCs. That figure for PCs represents its highest quarterly market share yet, at 18.5 per cent of the market.
As you can gather from the plans of its CEO, Lenovo has decided to re-launch the Motorola brand in China and other emerging markets as it adds entry level Motorola phones into its collection. Also the company still aims to compete in the premium market utilising Motorola's existing plans.
Lenovo's bold moves and optimistic acquisitions, costing nearly half of the company's market value, have inevitability spooked some investors. Lenovo's shares have dropped 6.04 per cent since the start of the year, compared with the Hong Kong index's loss of 4.65 per cent.
