Lenovo Quarterly Profits Grow 30 Percent

Chinese electronics giant Lenovo has posted record profits for the third quarter of 2013-2014 financial year, riding high on the sales of mobile devices.

Lenovo is the largest PC manufacturer in the world, and will become the third largest smartphone manufacturer when its acquisition of Motorola Mobility, announced in January, completes.

The company’s profits grew 30 percent year-on-year to $265 million (£159m), well above market estimates of $247 million. However, the latest set of results doesn’t take into account the more than $5 billion Lenovo has set aside to acquire Motorola and IBM’s x86 server division.

Greetings from China

In the West, Lenovo is best known for the ThinkPad brand, which it acquired when it took over IBM’s PC business in 2005. Since then, the Chinese company has been growing at an incredible rate, but it has struggled with creating a recognisable identity in markets outside of Asia.

Lenovo reports it shipped a record 32.6 million devices in just three months ending with December – that’s nearly five devices per second. Record shipments in turn increased its revenues by 15 percent, to a record $10.8 billion (£6.5bn).

Most of this growth was fuelled by smartphone sales in the domestic markets, where Lenovo is a household name. Mobile devices are now responsible for 16 percent of the company’s total revenues, up from 11 percent a year ago.

Lenovo warned that its recent acquisition of Motorola Mobility for $2.9 billion (£1.76bn) will have a negative impact on the future financial results. However, company’s chairman and CEO Yang Yuanqing told the Financial Times he was confident that Lenovo can turn Motorola business around in three to five quarters.

In January, Lenovo had also agreed to acquire IBM’s x86 server business for $2.3 billion (£1.4bn), giving it ownership of the System X, BladeCenter and Flex System servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software.

Both Motorola Mobility and IBM’s server division are currently making a loss, but the acquisitions will allow Lenovo to diversify its business and shift away from the PC market, which continues its steady decline. According to Gartner, sales of personal computers fell another 10 percent in 2013, as customers exchanged their desktops for smartphones and tablets.

“While our top priority now is full participation in the regulatory approvals process, I am confident that from day one after closing, these businesses will quickly begin contributing to our performance and develop into pillars for long-term, sustainable growth,” said Yang Yuanqing.

Last week, following the announcement of the Motorola deal, Lenovo’s shares lost as much as 16 percent of their value on the Hong Kong stock exchange in a single day, on fears that the company is overstretching itself. The shares lost one percent after the quarterly results were published.

Lenovo was founded in a guard shack