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Lenovo profit beats estimates on cost cuts amid smartphone slump

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Lenovo Group Ltd posted a surprise 19 per cent increase in quarterly profit as stringent cost controls countered the impact of a faltering Chinese economy and stalling demand for smartphones and personal computers.

[BEIJING] Lenovo Group Ltd posted a surprise 19 per cent increase in quarterly profit as stringent cost controls countered the impact of a faltering Chinese economy and stalling demand for smartphones and personal computers.

The world's largest PC maker reported net income of US$300 million in the fiscal third quarter ended December, compared with analyst estimates for earnings to fall to US$242.5 million. Sales fell 8 per cent, the first decline in more than six years.

Lenovo is targeting a US$1.35 billion reduction in annual costs and the elimination of 3,200 jobs to help withstand intensifying competition in smartphones as it focuses on boosting its share of the shrinking PC sector.

The company needs to turn its phone unit profitable this year to meet a promise of ending losses within six quarters of buying the Motorola brand from Google Inc. 

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Chief Executive Officer Yang Yuanqing has said the company will try to grab greater market share in the US and Europe this year, pivoting away from intensifying competition back home in China.

It's also aiming for US$5 billion of annual sales from an enterprise division it expanded in 2014 by buying International Business Machines Corp's server division.

"Going forward, we should look at its enterprise and server business. That could be an area for profit-making," Ricky Lai, an analyst at Guotai Junan International Holdings Ltd, said before the results.

The shares have fallen 10.4 per cent this year, compared with a 14 per cent drop in the Hang Seng Index.

Lenovo is reducing its reliance on a Chinese economy growing at its slowest pace in 25 years, while whittling away at costs to counteract an ailing worldwide PC market.

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