Lenovo surprises with US$118m profit

Business | Reuters and Avery Chen 24 May 2019

Tech giant Lenovo Group (0992) yesterday reported a market-beating three-fold surge in quarterly profit, helped by strong personal computer sales, and said its production plans have not been affected by the ongoing Sino-US trade war.

The personal computer maker's net profit for the first quarter soared 257.58 percent year-on-year to US$118 million (HK$920.4 million), compared to the US$91.4 million average of seven analyst estimates compiled by Refinitiv.

For the full year ended March 31, Lenovo swung to a profit of US$597 million, rebounding from a loss of US$189 million a year earlier.

Earnings per share were 5.01 US cents, and a final dividend of 21.8 HK cents per share was declared.

Lenovo's total revenues grew 12.5 percent year-on-year to US$51.04 billion for the full year, as both PC and smart device business and data center group scored record revenues. Its gross profit margin gained 0.6 percentage point to 14.4 percent, largely attributable to margin expansion of its PC and smart device business and mobile business group.

Lenovo's mobile business, which it has been trying to turn around, continued to lose money. Its nascent data center division also booked a loss, despite revenue climbing 37 percent.

Still investors, worried that the Sino-US conflict was morphing into a technology cold war, dumped shares of Asian tech companies, with Lenovo's stock price falling as much as 6.3 percent to its lowest in nearly four months.

Shares of Lenovo closed 2.65 percent lower at HK$5.88 yesterday.

Dual-headquartered in China and the United States, the world's largest PC maker said it is "well poised to navigate the turbulence in the geopolitical and macro-economic environment."

The United States has sought to address what it believes is imbalanced trade with China, unleashing waves of tit-for-tat import tariffs on billions of dollars worth of goods.

Lenovo said it was less exposed to the US market than competitors, and that most of its products are not subject to the new tariffs. "We definitely don't want to see this situation," said chairman and chief executive Yang Yuanqing. "We've always said we wish the two governments can get the agreement as early as possible."

Yang said Lenovo has contingency plans to shift production to its centers outside China - such as in India, Mexico, Hungary, Brazil and the United States - but so far has not made such adjustments.

The company also said it will maintain a business relationship with Huawei with respect to regulation and law in countries where it operates.

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