Lenovo beats profit forecasts on strong demand

Lenovo is very strong in China but weaker in markets such as the U.S. where it faces tough competition

Citing strong demand from customers and growth in emerging markets, Lenovo Group reported Tuesday that its second-quarter profit rose higher, topping analyst expectations.

Lenovo's profit reached HK$354 million (US$45.6 million as of Sept. 30, the last day of the period being reported), beating Thomson One Analytics' consensus forecast of HK$300 million by a wide margin. Lenovo said its second-quarter sales totalled HK$28.5 billion.

Breaking its second-quarter revenue down by product, Lenovo said notebooks were the biggest earner for the company during the second quarter, bringing in 48.7 percent of revenue, followed by desktop PCs, which accounted for 45.6 percent of revenue. Mobile handsets accounted for 4 percent of the company's revenue and "others" -- a category that includes servers, printers, and IT services, among others -- contributed 1.7 percent, Lenovo said.

Lenovo's mobile-phone business showed particularly strong growth, with revenue reaching HK$1.1 billion, more than double the revenue earned during the same period last year, the company said. With shipments of 1.4 million mobile phones during the second quarter, an increase of 139 percent over the same period last year, Lenovo claimed the number five spot among handset vendors in China.

In geographic terms, Lenovo said 35.8 percent of its revenue came from Greater China, the name given to the region that includes Hong Kong, Taiwan, and China. The Americas accounted for 31.8 percent of revenue; Europe, the Middle East and Africa contributed 20.4 percent; and the rest of Asia chipped in 12 percent, Lenovo said.

Lenovo said its growth in China and India exceeded the overall PC industry in terms of both revenue and shipment volume. Although the company grew unit shipments to record levels in the Americas, it saw lower year-on-year growth than the overall PC industry, it said.

Most analysts are pleased with how Lenovo has performed in recent months and see bright prospects ahead for the company.

Lenovo has been winning market share in China from rivals such as Dell, and the company is likely to see its notebook share increase in coming quarters, wrote Henry King, an analyst at Goldman Sachs (Asia), in a recent research note.

But in a different research note, William Bao Bean, an analyst at Deutsche Bank, warned that while Lenovo is very strong in China, the company is weaker in other markets, such as the U.S., where it faces tough competition from rivals Acer and Dell. Bean also cited figures from Gartner, showing Lenovo losing market share faster in Japan than in any other market.