May 23, 2012 / 6:05 AM / 7 years ago

UPDATE 2-China, new products raise Lenovo Q4 net profit

* Diversifying into smart TVs, tablets, smartphones

* Home market of China continues to outperform

* Analysts say Lenovo could overtake HP next year

By Lee Chyen Yee

HONG KONG, May 23 (Reuters) - Strong sales in China helped Lenovo Group Ltd post a 59 percent rise in fourth-quarter net profit on Wednesday, meeting analyst expectations, as the world’s No.2 PC maker begins to diversify more aggressively into smartphones, tablet PCs and smart TVs.

Lenovo’s PC shipments in the world’s second-biggest economy were more than double the industry’s pace in the quarter, helping the company to report earnings growth that beat smaller rival Dell Inc.

As Lenovo diversifies, analysts are forecasting the company could overtake market leader Hewlett-Packard Co as soon as next year. HP reports quarterly earnings on Thursday.

“Even though China’s economy is slowing down, it’s still ahead of the U.S. and Europe, so it will continue to be the driver for Lenovo to get to be the world’s No.1, a position it should be able to achieve,” said Arthur Liao, an analyst with Fubon Securities in Taipei.

Lenovo posted a net profit of $472.99 million for the fiscal year ended March, it said, versus a consensus forecast of $472.2 million from a poll of 29 analysts by Thomson Reuters I/B/E/S.

The PC maker recorded a net profit of $273.236 million a year earlier, it said in a statement posted on the Hong Kong stock exchange.

That meant Lenovo earned $66.8 million for the fourth quarter versus a consensus forecast of $66 million, based on a Reuters’ calculation using unaudited nine-month financial data.

Lenovo’s results stand in contrast to Dell, the world’s No.3 PC maker, which posted a decline in quarterly results on Tuesday and forecast a 2 to 4 percent revenue gain in the coming fiscal quarter to $14.7 billion to $15 billion, short of the $15.4 billion Wall Street had been expecting.

The reason Lenovo is outperforming Dell is because Dell is focused on high-margin products while Lenovo is aiming for volume sales to gain market share, said Jonathan Ng, an analyst with CIMB Research in Singapore.

Recent rankings showed Lenovo had a worldwide market share of 13.4 percent, lagging HP’s 18.0 percent, but ahead of Dell’s 11.6 percent, according to research firm IDC.


The ability of Lenovo to cross-sell consumer products and business products “should sustain higher PE multiples for Lenovo, reflecting the ability to expand its portfolio beyond the PC space in China,” JPMorgan said in a note before the earnings release.

The company said its smartphone market share in China reached 9.5 percent in the quarter and its tablets had a dominant position of about 50 percent of the Android market in China.

Lenovo plans to triple its smartphone shipments this fiscal year from around 5 million in the previous year, executives said.

China is Lenovo’s stronghold, accounting for 42 percent of total revenue, while mature markets such as Japan and Europe make up another 42 percent. Emerging markets account for the remaining 16 percent.

Operating profit in China grew to $552 million during the fiscal year and the operating margin was up 0.1 percentage point year-on-year to 4.5 percent, the company said.

Chinese government measures to curb inflation had cut economic growth, but China’s PC market continued to outgrow the worldwide PC market, driven mainly by relatively stronger demand in emerging cities.

However, sales of its Lepads and Lephones still lag foreign leaders such as Apple Inc and Samsung Electronics Co Ltd, as well as local rivals Huawei Technologies Co Ltd and ZTE Corp .

In China, Apple still dominates the tablet market with a more than 70 percent market share, with Lenovo coming in a distant second with a single-digit share.

In May, Lenovo launched a smart TV in China in hopes of satisfying increasingly demanding consumers who prefer to play games and watch movies online on bigger screens.

Since the beginning of this year, Lenovo shares have climbed about 30 percent compared with the Hang Seng Index’s 1.6 percent gain. On Wednesday, Lenovo’s shares ended down 1.45 percent at HK$6.78, lagging the broad Hang Seng Index’s 1.33 percent fall.

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