Lenovo's Q3 beat, confidence on managing virus impact boost shares

[SHANGHAI] Lenovo Group, the world's biggest PC maker, posted a better than expected profit on Thursday and said its global operations would help it tackle short-term headwinds from China's coronavirus outbreak, sending its shares up nearly 8 per cent.

The Chinese company reported an 11 per cent rise in net profit for the quarter ended December to US$258 million thanks to strong demand for its PCs and smart devices, beating an average US$223 million estimate of seven analysts, according to Refinitiv data. Revenue rose to a record US$14.1 billion.

"The numbers are very good," said Christopher Yim, analyst at BOCOM International, adding that the PC business' profitability was impressive.

Lenovo is among companies facing disruptions to their supply chain after local governments in China extended a Lunar New Year holiday and imposed strict travel curbs to limit the spread of the coronavirus.

iPhone maker Apple warned earlier this week it will not be able to meet sales forecasts for the current quarter as the virus outbreak was pressuring its supply chain.

One of Lenovo's biggest factories is in the central Chinese city of Wuhan, the epicentre of the outbreak, where businesses remain shut, although its factories in the cities of Shenzhen and Hefei resumed work on Feb 10.

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"The vast majority of the group's factories in China have reopened and are operational on a limited basis, although its suppliers and even logistics services across the countries remained impacted," Lenovo said in a statement.

"Nevertheless, given its extensive global footprint, the company is well-positioned to address the supply challenges by leveraging its strength as a global company with worldwide manufacturing capabilities and supply chain efficiency."

Yim of BOCOM International said Lenovo was better placed than some of its technology peers because of spread out manufacturing facilities.

"They have a global manufacturing base, so that could put them in a relatively better position."

The global PC market grew 2.3 per cent in the quarter to December, as customers replaced machines to migrate to Windows 10, market research firm Gartner said last month. Lenovo took a 24.8 per cent market share during the quarter, ahead of rivals HP Inc and Dell, it said.

The year began on a positive note for Lenovo, which won a respite in the US-China trade war after an early January interim agreement between Washington and Beijing eased 18 months of tensions.

Laptop computers were among US$156 billion worth of Chinese goods that Washington had threatened to hit with tariffs in December, along with cellphones and toys, which US President Donald Trump later decided not to implement.

Reuters