Business Technology

Tuesday 25 October 2016

World's biggest PC maker focuses on West as shares fall

Haixing Jin

Published 04/02/2016 | 02:30

Yang Yuanqing, chairman and chief executive officer of Lenovo Group Ltd. Photo: Justin Chin/Bloomberg
Yang Yuanqing, chairman and chief executive officer of Lenovo Group Ltd. Photo: Justin Chin/Bloomberg

Lenovo Group plunged in Hong Kong trading yesterday after quarterly revenue declined for the first time in more than six years on stalling demand for phones and computers.

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Shares fell 10pc in their biggest decline in two years. The world's largest PC maker said revenue dropped 8pc in the three months ended December, but cost cuts delivered a surprise rise in net income. Lenovo is relying on cutting $1.35bn (€1.23bn) from annual costs and eliminating 3,200 jobs to shield its earnings from intensifying smartphone competition and a shrinking market for PCs. While it's expanding into other businesses, it still gets more than half of revenue from a market that Intel last month warned was off to a "soft" start in 2016 amid tepid economic growth.

"The current fiscal quarter is the usual PC and mobile industry low season, and we expect mid-teen decline in sales on quarter-over-quarter basis," Joseph Ho, an analyst at GF Securities Brokerage, said.

The cost cuts helped Lenovo increase net income 19pc to $300m in the third quarter. That compared with analyst estimates for earnings to fall to $242.5m. Its smartphone division also broke even on an operational basis for the first time since Lenovo bought the Motorola brand from Google in 2014. However, if charges including those related to the deal were taken into account, the business would have had a pre-tax loss of $30m.

Chief executive Yang Yuanqing, inset, is trying to grab greater market share in the US and Europe this year, pivoting away from intensifying competition back home. The smartphone division should stay profitable in fiscal 2017 after the summer US launch of its "'Tango" augmented-reality phone and a lower cost structure help it gain market share globally. (Bloomberg)

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