Lenovo profit misses estimates as PC rivals erode global lead

Lenovo Group Ltd.’s quarterly earnings missed projections as the world’s largest personal computer maker struggles to reboot a floundering PC and smartphone business.

Net income fell 67 percent to $98 million in the quarter that ended in December, Lenovo said in a filing. That compares with the $145.9-million average of analysts’ estimates compiled by Bloomberg. Revenue was down 6 percent to $12.2 billion compared with estimates for $11.7 billion.

Lenovo remains the world leader in a personal computer market struggling through a prolonged downturn as people opt for smartphones to handle everyday tasks. But it barely maintained pole position over HP Inc. during the quarter as its chief rival widened its share of the North American market, according to research firm IDC. A rise in component prices also pressured margins. The Beijing-based company is now negotiating a deal to tie up with Japan’s Fujitsu Ltd. and shore up its position, an imperative given the smartphone business it bought with Motorola remains unprofitable.

"Lenovo is as keen as Fujitsu to close a deal soon, so that it can comfortably retain its No. 1 PC crown,” Ken Hui, an analyst with Huatai Financial Holdings, wrote in a note ahead of the earnings release.

Lenovo is cutting jobs, selling assets and pushing into higher-end devices to weather shrinking demand and competition in PCs. Three years after Lenovo closed its $2.9 billion acquisition of Motorola Mobility, the smartphone business remains well behind Vivo, Oppo and Huawei Technologies Co. in terms of market share.

Lenovo however expects its smartphone business to turn profitable this year, though a paucity of new models cast doubt on its outlook, BOCOM International analyst Chris Yim wrote in a note ahead of the earnings. In 2016, it appointed long-time human resources director Gina Qiao to lead smartphone sales in China, the third executive to have taken up the position since the Motorola takeover. She hasn’t outlined how she intends to revive the business.

Shares of Lenovo fell 2.1 percent to HK$5.12 at the trading break in Hong Kong before the results were released.