Lenovo's disappointing quarterly revenue knocks shares down 11 percent

HONG KONG (Reuters) - China's Lenovo Group Ltd 0992.HK reported a forecast-beating third-quarter net profit on Wednesday, but a disappointing drop in revenue amid a slowing global PC and smartphone market sent its shares tumbling 11 percent.

The logo of Lenovo is seen on a computer monitor during a news conference in Hong Kong in this May 27, 2010 file photo. REUTERS/Tyrone Siu/Files

Lenovo Chief Executive Yang Yuanqing reiterated the company’s shift to emerging markets outside of mainland China, such as India and Southeast Asia, to counter the sales drop at home as the once booming smartphone market has become saturated.

“It doesn’t mean we are giving up on the China market, but we believe once we build a solid foundation in the global market, we have a better chance to win back in China,” Yang told Reuters in an interview.

The world’s largest personal computer maker and No.5 smartphone vendor recorded an 8 percent fall in third-quarter revenue to $12.9 billion due to slower global PC demand and weaker smartphone sales. Net profit rose to $300 million from $253 million in the year-ago period.

That compared with the average $13.19 billion revenue and $226.4 million net profit estimates of analysts polled by Thomson Reuters.

As China’s economy grows at its slowest pace in a quarter of a century, smartphone markers such as Lenovo and investor darling Xiaomi Inc [XTC.UL] are now diversifying away from the intense competition in low-margin handsets in the world’s largest handset market.

Yang said Lenovo's strong intellectual property portfolio - thanks to the acquisition of Alphabet Inc's GOOGL.O Motorola handset unit - would give it an advantage when competing with Chinese smartphone vendors overseas.

In the fourth quarter, Lenovo took third place in India’s smartphone market where shipments had grown at a double-digit rate last year, according to research firm Canalys.

“Lenovo has no better options but to shift focus to emerging markets,” said Jefferies analyst Ken Hui. “It’s hard for Lenovo to compete in mature markets, and the margins in the China market are too low.”

The company consolidated its hold on the slowing PC market. Its PC shipments fell 4 percent year-on-year during the quarter compared with an 11 percent decline in the broader industry, the company said in a statement.

Lenovo took 5.4 percent of the global smartphone market in 2015, a distant fifth after top player Samsung Electronics Co's 005930.KS 25 percent and Apple Inc's AAPL.O 17.5 percent, according to researcher TrendForce.

Its smartphone shipments plunged 53 percent in China in 2015 to leave it in eighth spot, with a mere 3 percent share of the market in the fourth quarter, according to Canalys.

The results sent Lenovo shares down 11 percent on Wednesday, their biggest one-day drop in two years, compared with a 2.3 percent fall on the broader Hang Seng index .HSI.

Reporting By Yimou Lee; Editing by Muralikumar Anantharaman