China's Lenovo swings to second-quarter profit on property sale

HONG KONG (Reuters) - China's Lenovo Group Ltd 0992.HK, the world's largest personal computer (PC) manufacturer by shipments, on Thursday said it returned to profit in its second fiscal quarter, beating analyst estimates, due primarily to gains from an asset sale.

A man uses his laptop next to Lenovo's logos during the Mobile World Congress in Barcelona, Spain February 25, 2016. REUTERS/Albert Gea

Growth in the consumer PC market in particular has been sluggish in recent years as tablet computers and increasingly capable smartphones become widespread.

Lenovo is the world's largest PC vendor with a 21.3 percent market share, but its lead over second-ranked HP Inc HPQ.N has shrunk to the narrowest margin since the Chinese firm took the top position in 2013, showed data from researcher IDC.

“In the short term, market conditions will remain challenging,” Chairman and Chief Executive Yang Yuanqing said in a filing to the Hong Kong Stock Exchange. Lenovo aims to maintain leadership in PCs through industry consolidation while building on its mobile and data center businesses, he said.

Profit reached $157 million for the three months ended Sept. 30, from its worst-ever quarterly loss of $714 million in the same period a year earlier when Lenovo booked one-off costs to restructure and integrate the mobile business of Motorola.

The result, helped by a property disposal gain of $206 million, compared with a Thomson Reuters SmartEstimate of $131 million drawn from the estimates of 14 analysts.

Revenue fell 8 percent to $11.2 billion, versus the $11.02 billion analyst estimate.

For the first half, net profit was $330 million versus a loss of $609 million a year earlier, while revenue fell 7 percent to $21.3 billion. It said revenue fell 8 percent in its PC and smart device business, 10 percent in its mobile business and 4 percent in its data center.

“The Group will develop new smart devices, powered by cloud and enriched with services,” Yang said in the filing. “The Group is exploring smart home, smart office, smart healthcare and other areas and leveraging artificial intelligence ... and other new technologies.”

Lenovo said its global PC shipments declined 3 percent in the first half against a market decline of 4 percent.

Lenovo is in talks with Japan's Fujitsu Ltd 6702.T to explore strategic cooperation regarding the latter's PC business. A potential acquisition of Fujitsu's PC business could help Lenovo consolidate its footing in the global PC market and counter slower growth at home in China, its biggest market, analysts said.

Reporting by Sijia Jiang; Editing by Christopher Cushing