Bloomberg News

Lenovo to Sell Phones in Markets Where IPhone Seen Costly

November 08, 2013

Lenovo Profit Surges

Lenovo Group Ltd., which has its headquarters in Beijing and Morrisville, North Carolina, rose 0.4 percent to HK$8.45 at the noon break in Hong Kong trading, before the announcement. The stock has climbed 20 percent this year, surpassing the 1 percent gain in the city’s benchmark Hang Seng Index. Photographer: Krisztian Bocsi/Bloomberg

Lenovo Group Ltd. (992), the largest maker of personal computers, said it will triple the number of markets in which it sells smartphones by focusing on emerging economies where Apple Inc. (AAPL:US)’s iPhone is seen as too costly.

“We have seen the first wave of success in Asian countries,” Chief Executive Officer Yang Yuanqing said in an interview yesterday. “We provide affordable products for emerging markets. That’s very important. For those markets, the iPhone is probably not the best-selling product, Lenovo can be much more competitive.”

Lenovo, in the next few quarters, will start selling smartphones in at least 20 new markets in the Middle East, Africa and Latin America, adding to the 10 where they are currently sold, Yang said. The global push comes after success in Indonesia, where Lenovo grabbed 13 percent market share in 12 months while achieving profit margins higher than in the home market of China, he said.

The company’s expanding global smartphone market share helped Lenovo report second-quarter profit that beat analysts’ estimates. Net income climbed 36 percent to $219.7 million in the three months ended September, Lenovo said yesterday. That surpassed the $202.7 million average of 17 analysts’ estimates compiled by Bloomberg.

‘Smartphone Shipments’

“Their smartphone shipments were better than they originally guided for,” Jun Zhang, an analyst with Wedge Partners Corp., wrote in an e-mail yesterday. “Gross margin and operating margin should improve as the smartphone business” expands, he said.

Second-quarter revenue rose 13 percent to $9.77 billion, exceeding the $9.41 billion average of 18 analysts’ estimates.

Lenovo, which has its headquarters in Beijing and Morrisville, North Carolina, fell 0.8 percent to close at HK$8.53 in Hong Kong trading. The stock has climbed 22 percent this year, surpassing the 0.4 percent gain in the city’s benchmark Hang Seng Index.

Expansion abroad may boost mobile devices to 50 percent of Lenovo sales within five years, from 20 percent now, Yang said.

While the company has plans to grow the business organically, it will also look at opportunities to expand through acquisitions, Yang said. He declined to comment on any specific targets, or whether the company had pursued BlackBerry Ltd. (BBRY:US)

‘It’s a Tool’

“We want to spend our shareholders’ money smartly,” Yang said in the interview. “Unless there is chance to give shareholders a good return, and we can get a good valuation for our shareholders, then I don’t think we should have an acquisition. Acquisition is not a purpose, it’s a tool.”

Lenovo hasn’t been told by any government that it couldn’t purchase assets because it’s a Chinese company, Chief Financial Officer Wong Wai Ming said on an earnings conference call yesterday. Wong was responding to a question about a report in The Globe and Mail that Lenovo had pursued a bid for BlackBerry until the Canadian Government said it wouldn’t accept a Chinese takeover of the company because of national security concerns.

Wong also declined to comment specifically on any interest the company may have had in bidding for BlackBerry.

Yang is expanding in mobile devices, competing with Apple and Samsung Electronics Co. (005930), amid a slump in global PC shipments. Lenovo posted the biggest gain in shipments among the world’s top-five PC vendors in the period as the industry experienced a 7.6 percent drop amid weak consumer sentiment for traditional computers, researcher IDC reported last month.

PC Share

The company’s share of the global PC market expanded to 17.3 percent in the period, from 15.7 percent a year earlier, as it managed to boost shipments 2.2 percent amid the industry’s decline, IDC reported.

Smartphone shipments by Lenovo rose 78 percent to 12.3 million units, the company said yesterday.

Lenovo, which released its flagship K900 handset in May, ranked fourth in global smartphone shipments during the period as its market share rose to 4.7 percent, from 3.7 percent a year earlier, according to IDC.

“The better profit is due partly to its smartphone business and cost control,” Jenny Lai, a Taipei-based analyst at HSBC Holdings Plc, said of the second-quarter results. “Top-line growth is coming from both corporate replacement cycle and rising contribution from smartphone sales.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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