Lenovo returns to profit as PC performance beats overall market

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A Lenovo logo is seen at the computer in Kiev, Ukraine April 21, 2016. REUTERS/Gleb Garanich/File Photo

HONG KONG | China’s Lenovo Group Ltd, the world’s largest personal computer (PC) maker, on Thursday said it returned to profit in a year when its PC shipments fell at a slower rate than the overall market as consumer demand continued its downward trend.

Profit reached $535 million (412 million pounds) in the year to March on revenue that fell 4 percent, reversing a loss of a year prior and just missing analyst estimates. The news sent Lenovo shares up as much as 6 percent in Hong Kong trade.

The result comes as Lenovo navigates a PC market that has shrunk markedly since the advent of tablet computers. According to researcher Gartner, global PC shipments fell for the 10th consecutive quarter in January-March, dipping below 63 million units for the first time since 2007.

Lenovo’s annual shipments fell 1 percent versus a market fall of 3 percent, with its share rising 0.4 percentage point to a record 21.4 percent. Revenue in its PC and smart devices unit – which makes up 70 percent of the total – fell 2 percent.

The company blamed the declines on transition in its smartphone and data centre businesses, as well as on a difficult macro environment and component supply constraints.

“Despite market conditions that will remain challenging in the short term, the Group exited the year with stronger organization,” Chairman and Chief Executive Officer Yang Yuanqing said in a filing.

In an interview, Yang said reorganising its China business, announced last week, would not affect mobile, which will be a third line outside of PCs and smart devices, and data centres.

“We need to improve our China consumer strategy … sharpen our brand, and transform retail system,” Yang told Reuters.

Mobile loss

PC competition took a step up this week when China’s largest mobile phone maker, Huawei Technologies Co Ltd, said it would enter the market for premium consumer models.

“We are never afraid of new competition, they still need to prove themselves in PC,” Yang said.

Lenovo also competes with Huawei in mobile, which accounts for 18 percent of revenue. The unit’s loss widened to $566 million from $469 million a year prior, though Lenovo said it had strong growth in Latin America and Western Europe.

Its data center business, which includes servers and enterprise services, booked a loss of $343 million.

Yang said Lenovo’s core PC business remained solid, transformation for its mobile business was on track, and it is accelerating efforts to improve in data centres.

For the three months through March, profit fell 41 percent to $107 million on revenue that rose 5 percent.