* Q2 net profit $162 mln vs $156.3 mln forecast
* Uncertainties include global economy, mobile computing
* Lenovo sees smartphone business turning profitable soon
* Shares end down 2.6 percent, Hang Seng index loses 2.4 pct
By Lee Chyen Yee
HONG KONG, Nov 8 Lenovo is on track to
become the world's No.1 PC maker, but with traditional PCs going
out of vogue with consumers, the Chinese company is pinning
future growth hopes on smartphones and tablets, a segment
dominated by Apple and Samsung Electronics.
The Thinkpad maker has successfully grabbed market share
from rivals such as Dell Inc and Acer Inc.
Technology research firm Gartner says it has already overtaken
market leader Hewlett Packard Co in PC shipments and
rival research firm IDC ranks it a close second.
However, with the traditional PC sector's long-term future
uncertain, Lenovo has forayed recently into the mobile computing
business and is ploughing resources there.
Reflecting that push, the company reported on Thursday a
12.6 percent rise in quarterly net profit to $162 million, its
slowest profit growth in more than two years, though it beat the
$156.3 million consensus forecast of analysts.
"Obviously their cash cow is still going to be PCs, so they
will use their PC business to expand into tablets and
smartphones," said Jonathan Ng, an analyst with CIMB in
In the six months to September, Lenovo's PC revenues
accounted for nearly 90 percent of total revenues of $16.7
billion and grew 14 percent.
Revenues at its mobile Internet and digital home division
more than doubled to $1.3 billion in the same period, mainly due
to consumers snapping up its smartphones in China, the world's
largest mobile phone market.
Lenovo has been adept at capturing market share in the PC
sector, claiming the No.1 spot in markets such as China, India,
Germany, Japan and Russia.
A raft of acquisitions in the United States, Japan, Germany
and Brazil over the past few years has also helped strengthen
TRACTION IN CHINA
But with the traditional PC sector viewed by many analysts
and investors as a sunset industry, Lenovo is attempting to pack
more punch into its mobile computing products in a segment where
consumers are often fickle on brands and features.
Last month, it launched the Yoga, a laptop running Microsoft
Corp's Windows 8, which can be converted to a tablet
PC by flipping the screen all the way backwards.
Lenovo's smartphones, such as LePhones, have gained traction
in China with the PC maker ranking second in terms of market
share in the second quarter, behind Samsung Electronics
, IDC data showed.
In the second quarter, Lenovo sold 8.6 million phones,
including 7 million smartphones, mainly in China, CEO Yang
Yuanqing told a media teleconference on Thursday.
"We've had success in China. For the next step, we want to
expand in the emerging markets first, then mature markets," he
said. The company derives nearly half of its total revenues from
Its China smartphone business is currently loss-making, but
the company expects to turn a profit in the next few quarters,
Whether its Windows tablets and smartphones achieve wider
success remains to be seen, in a market where Google Inc's
Android and Apple's iOS rule.
"So far in China, they have the advantage and they have been
doing well over there. But outside China, that remains to be
seen because competition is more intense," CIMB analyst Ng said.
Microsoft has also launched its own Surface tablet, though
market observers say the impact on PC suppliers in Asia is
"The shipment target for Surface is still relatively low and
PC makers here still have an edge in terms of hardware design
and performance," said Audrey Chiu, manager for investment and
research at Truswell Securities Investment Trust Co Ltd, which
owns Lenovo shares.
Shares of Lenovo ended down 2.6 on Thursday, in line with
the broader market's fall. Lenovo shares are up 27
percent since the start of this year.