Lenovo profit beats analyst estimates on smartphone gains

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An employee displays a Lenovo K900 smartphone for a photograph at the Mobile World Congress in Barcelona. Photo: Bloomberg

Lenovo Group Ltd. (992), the world's biggest maker of personal computers, reported first-quarter profit that beat analyst estimates after increasing its global market share for tablet computers, smartphones and PCs.

Net income climbed 23 percent to $173.9 million in the three months ended June from $141.4 million a year earlier, Lenovo said in a statement today. That exceeded the $167 million average of 10 analysts' estimates compiled by Bloomberg. The stock rose the most in a month.

Chief Executive officer Yang Yuanqing is seeking acquisitions as he weathers a global slump in PC demand by developing mobile devices to lure customers from Apple Inc. (AAPL) and Samsung Electronics Co. Lenovo posted the narrowest decline in shipments among the top five vendors last quarter, helping it supplant Hewlett-Packard Co. (HPQ) as the largest maker in the period, Stamford, Connecticut-based Gartner Inc. said last month.

"The company is transforming itself from PC-based to smartphone- and tablet-based," said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong. "There is robust demand for tablets and smartphones especially in China and emerging economies."

Revenue rose 9.7 percent to $8.79 billion. That compares with the $8.49 billion average of 16 estimates compiled by Bloomberg.

Lenovo, which has its headquarters in Beijing and Morrisville, North Carolina, surged 2.9 percent to HK$7.78 at 10:13 a.m. in Hong Kong, the biggest gain since July 11. The stock has climbed 11 percent this year while the city's Hang Seng Index is little changed.

Industry slump

The company will be "proactive" in seeking acquisitions in computers and smartphones, Yang said in an interview today without citing specific deals. Yang declined to comment on any potential interest in parts of BlackBerry Ltd. (BB) and International Business Machines Corp. (IBM)

Lenovo considered targets and alliances, including a deal with BlackBerry, Chief Financial Officer Wong Wai Ming said in January. Talks to buy parts of IBM's server division broke down after the two sides couldn't agree on a price, a person familiar with the discussions said in May.

During the June quarter, industrywide personal-computer shipments dropped for a fifth straight quarter, the longest losing streak on record, as consumers continued to favor touch-screen tablets and smartphones.

Record smartphones

Lenovo's PC unit sales fell 0.6 percent, giving it a market share of 16.7 percent, compared with HP's 16.3 percent of the market after a 4.8 percent drop in shipments, according to Gartner. Lenovo and HP have been trading the top spot since last year.

Smartphone shipments by Lenovo more than doubled from a year earlier to a record 11.4 million units, the company said today.

"This was driven by strong smartphone demand in China and expansion into more countries outside of China," it said.

Lenovo, which released its flagship K900 handset in May, ranked fourth in global smartphone shipments during the quarter, accounting for 4.7 percent of the market, researcher International Data Corp. reported last month. The company's tablet shipments more than quadrupled in the period to rank fourth, with a 3.3 percent share of the total, IDC said.

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