Acquisitions likely to hit Lenovo's profits in short term

Lenovo reported a 30 per cent jump in its net profit in the fourth quarter of last year

Lenovo reported a 30 per cent jump in its net profit for the fourth quarter of last year, with its earnings driven by a record number of devices shipped.

But the company expects its profit will drop in the short-term with the proposed acquisitions of Motorola Mobility and IBM's low-end server unit, both businesses that are struggling.

In the quarter ended December 31, the Chinese PC maker's net profit climbed to $US265 million, up from $US205 million in the same period a year ago. Its net revenue reached $US10.8 billion, up 15 per cent year-over-year.

Lenovo has consistently reported strong earnings even as demand for PCs has been shrinking. The company is increasingly focusing on mobile devices, including smartphones, tablets, and expanding into enterprise products. Last month, it announced it would buy Motorola Mobility from Google, and the x86 server business from IBM.

Without the Motorola business, the company is already the world's fourth largest smartphone maker on sales mainly to its home market. During the quarter, it sold 14 million smartphones, with 2 million of those sales outside China, said Lenovo's CEO Yang Yuanqing in an earnings call.

Lenovo's division that develops mobile products and smart TVs accounted for 16 per cent of the company's total revenue in the quarter, an increase from 11 per cent a year ago. In addition, Lenovo's tablet sales grew 326 per cent year-over-year to 3.4 million units.

In total, the company shipped 17.3 million mobile devices in the quarter, more than the 15.3 million PCs it shipped in the same quarter. By acquiring Motorola, Lenovo will immediately gain access to mature markets such as the US, Yang said.

Most of the company's revenue still comes from its PC sales. But on Thursday, Lenovo said it's confident it can turn its fledgling server business into a more profitable one than its PCs. The acquisition of IBM's x86 server business, if finalized, will potentially turn Lenovo into a top player in the sector, alongside leaders Dell and HP, according to analysts.

Both Motorola Mobility and IBM's x86 server business, however, have been losing revenue because of competition. But Lenovo's CEO said he believes his company can turn both businesses around.

In handsets, Lenovo wants to focus on higher-end devices, to increase product profit margins. The company's own manufacturing capabilities will also help reduce expenses on making Motorola smartphones, Yang said.

As for servers, Lenovo's CEO said demand for the hardware is growing in China, now one of the world's largest tech markets. But in the short-term, acquiring both Motorola and IBM's server business will have a "negative impact" on the company's earnings, Yang added.

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection

Tags business issuesLenovofinancial results

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Michael Kan

IDG News Service
Show Comments

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

George Khoury

Sharp PN-40TC1 Huddle Board

The biggest perks for me would be that it comes with easy to use and comprehensive programs that make the collaboration process a whole lot more intuitive and organic

David Coyle

Brother PocketJet PJ-773 A4 Portable Thermal Printer

I rate the printer as a 5 out of 5 stars as it has been able to fit seamlessly into my busy and mobile lifestyle.

Kurt Hegetschweiler

Brother PocketJet PJ-773 A4 Portable Thermal Printer

It’s perfect for mobile workers. Just take it out — it’s small enough to sit anywhere — turn it on, load a sheet of paper, and start printing.

Featured Content

Product Launch Showcase

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?