Lenovo profit tops estimates as focus on higher margins pays off

[BEIJING] Lenovo Group Ltd. posted profit that beat the highest analyst estimate, as the Chinese personal computer maker fended off a challenge from HP Inc. and kept a lid on expenses.

Net income soared almost threefold to US$118 million in the March quarter, compared with the US$106 million average of estimates. Revenue of US$11.7 billion and gross margin of 16.2 per cent also surpassed projections.

Lenovo's turnaround effort has focused on prioritizing higher-margin products to bolster earnings as sales growth plateaus in slowing markets. Worldwide shipments of personal computers dropped in the first three months of 2019, hindered by lackluster consumer demand and component shortages that have dogged the once-thriving industry since the middle of last year. But IDC reckoned the Chinese company outgrew HP and Dell Technologies Inc., aided by its relationships with local cloud computing vendors.

Key Insights

PC makers shipped 4.6 per cent fewer devices in the first three months of 2019 from a year earlier, Gartner estimates

The loss-making data center division boosted sales 2.3 per cent to US$1.25 billion

Mobile division revenue climbed 15 per cent

Lenovo, like other Chinese tech giants, has to grapple with rising tensions with the U.S. that may depress its performance in the key North American market.

"Trade tensions and potential tariffs may be key to Lenovo's near-term thesis, even as its large PC segment likely stayed healthy," Anand Srinivasan, an analyst with Bloomberg Intelligence, said before the results were released.

BLOOMBERG