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China's Lenovo Logs Record Quarterly Profit, Beats Forecasts

Wednesday, 30 Jan 2013 | 4:42 AM ET
Bloomberg | Getty Images

China's Lenovo Group, on track to become the world's top maker of personal computers, reported a record quarterly profit, up by a third from a year earlier, as it gained more share in the PC market and made inroads in the smartphone business.

The ThinkPad maker, also China's No. 2 smartphone vendor, said on Wednesday net profit in its October-December third quarter had risen to $204.9 million.

That beat the average estimate of $178.4 million in a Thomson Reuters I/B/E/S poll of 11 analysts and exceeded its previous record of around $172 million in the three months ended December 2007.

Lenovo has rapidly gained market share in the PC sector on the back of acquisitions over the past few years. The company trails Hewlett Packard by a slim margin in PC shipments, according to technology research group IDC.

As PC demand growth slows, Lenovo has been diversifying into the mobile device sector to tap robust demand for smartphones and tablets, particularly at home in China, the world's biggest market for mobile phones and personal computers.

(Read More: Could This Chinese Firm Become RIM's White Knight?)

"In my opinion, Lenovo's strategy in mobile devices is that it will focus initially on the overseas markets that it's most familiar with and this includes emerging markets," Eve Jung, an analyst at Nomura Equity Research.

"However, it will face challenges in the sector as companies like Acer and Asustek roll out cheaper tablet PC models to aggressively target markets, such as China, which is Lenovo's traditional stronghold," she said.

In the third quarter, overall revenue grew 12 percent from a year earlier to $9.4 billion, with the bulk coming from its PC business.

About a tenth of its revenues were from its mobile internet and digital home (MIDH) business - mainly consisting of its smartphone sales in China, which jumped 77 percent to $998 million.

The company said its China smartphone business achieved profitability for the first time during the quarter.

(Read More: Lenovo Knocks HP Off Top of Global PC Market)

Shares of Lenovo rose 36 percent in 2012, outpacing a 23 percent rise in the Hang Seng Index and beating rivals Hewlett Packard, Dell Iand Acer, whose stocks fell last year.

On Wednesday, Lenovo shares closed down 2.7 percent prior to the results announcement, compared with the Hang Seng's 0.7 percent rise.

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