Lenovo Profitable Again Despite Falling Sales

Posts Q3 PC sales growth in U.S., phone growth in North America
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Lenovo at 2016 CES

Lenovo returned to profitability in its fiscal third quarter following one-time second-quarter restructuring charges and an 8 percent decline in year-over-year revenues.

Although revenues were down globally, U.S. sales in the PC Group were up year-over-year, and North America sales in the Mobile Business Group were up quarter-over-quarter.

The PC Group includes PCs and Windows tablets, and the Mobile Business Group includes Motorola phones, Lenovo-brand phones, Android tablets and smart TVs.

In the U.S., Lenovo’s PC shipments grew by 21 percent year-over-year against a 4 percent market decline, bringing Lenovo’s U.S. share to 12.5 percent, up 2.6 percentage points year-over-year, the company said. In mobile in North America, Motorola phones drove a 52 percent increase in quarter-to-quarter shipments in the region.

Lenovo also reported that it met its goal of breaking even in its mobile business within four to six months after purchasing Motorola in October 2014, which contributed $2 billion to Lenovo’s revenues in the quarter.

Global metrics: Consolidated global revenues were down 8 percent year-over-year to $12.9 billion, or 2 percent in constant currency. Net profit rose 14 percent to $294 million year-over year.

In the PC Group, quarterly sales were down 12 percent to $8 billion with pre-tax income falling 18 percent year-over-year to $405 million. The company attributed the decline to the “greater than expected slowdown in the PC market and foreign exchange fluctuations.”

In the Enterprise Business Group, which includes servers, storage, software and services, sales were $1.3 billion, up 8 percent year-over-year and 12 percent quarter-to-quarter.

In the Mobile Business Group, quarterly sales were $3.2 billion, down 4 percent from the year-ago quarter, which included two months of Motorola results. Total smartphone volume declined 18.1 percent year-over-year with 20.2 million units sold.

The company also said “a new solid dual-brand strategy – with two main brands Lenovo Moto and Lenovo Vibe -- is set driving consistency and efficiencies for the smartphone business.”

In the Americas, consolidated sales fell 7 percent year-over-year to about $3.9 billion, representing 31 percent of Lenovo’s total worldwide sales. Operating profit in the region hit $76 million compared with a year-ago $22 million operating loss.

Companywide realignment actions announced in August 2015 are on track to realize $1.35 billion in full-year run-rate savings, delivering “a cost structure that is significantly lower than its peers,” the company said.

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