Lenovo Group, which announced $5 billion of deals last month, said third-quarter profit rose 29 percent after expanding its lead in the personal computer market and gaining share in the smartphone market.

The world’s biggest personal computer maker said Thursday profit for the three months ending Dec. 31 was a record $265 million.

Revenue rose 15 percent to $10.8 billion. Sales of smartphones and other mobile devices rose 73 percent to $1.7 billion.

Sales of laptop computers that supply half the company’s revenue rose 11 percent to $5.4 billion while sales of desktop PCs rose 12 percent to $3.2 billion.

Specifically, net income climbed to $265.3 million in the three months ended December from $204.9 million a year earlier, Lenovo said in a statement. That beat the $243.7 million average of 12 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Yang Yuanqing has made acquisitions that allowed Lenovo to outpace the 10 percent drop in worldwide PC shipments last year. He’s using a similar strategy to push into new markets with the company announcing deals for Google’s Motorola Mobility unit to win U.S. smartphone sales and IBM’s low-end server unit to add corporate customers.

However, investors have not liked the Motorola deal, driving down shares 16 percent in the wake of the announcement. Several financial analysts also downgraded Lenovo’s stock.

Yang used the earnings report as an opportunity to speak out in defense of the deal.

“In a few quarters we can turn around the business,” Yang said in a phone interview today. The Beijing-based company has spoken to U.S. regulators and is working to get approval to buy Motorola from Google Inc. for $2.91 billion in cash and stock.

The acquisition of Motorola, which had operating losses of more $1 billion last year according to data compiled by Bloomberg, adds new risks and challenges to Lenovo as the company seeks to integrate the deal and revive sales, Yang said.

“They basically are taking on a material headwind to profitability which will impact their results,” said Alberto Moel, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “For the next few quarters we will be seeing earnings coming down. The question is how bad those earnings will drop and how low they will go before they start rising again.”


WRALTechWire coverage of Lenovo’s recent deals

  • Downgrades send Lenovo shares down 16 percent.
  • Who is Yang Yuanqing, the man driving Lenovo?
  • Lenovo’s “Great Leap:” Why Motorola Mobility deal was made
  • Lenovo-IBM server deal to affect 2,000 IBMers in Triangle. 

Lenovo operates its executive headquarters in Morrisville and employs some 2,100 people there. It also operates a manufacturing and distribution center in the Triad.

The IBM server deal would include the transfer of some 2,000 IBM workers in the Triangle to Lenovo if the deal is approved.

Shrinking Market

Net income climbed to $265.3 million in the three months ended December from $204.9 million a year earlier, Lenovo said in a statement today. That beat the $243.7 million average of 12 analysts’ estimates compiled by Bloomberg.

Sales climbed 15 percent to $10.8 billion from $9.36 billion a year earlier, beating the $10.5 billion estimate of 19 analysts compiled by Bloomberg.

Lenovo fell 0.6 percent to HK$8.63 at the close of trade in Hong Kong. The stock has lost 8.5 percent this year, compared with the 4.9 percent drop in the city’s benchmark Hang Seng Index.

The company maintained the No. 1 spot with 18.1 percent of the global PC market in the fourth quarter of last year, helped by a 6.6 percent increase in shipments, researcher Gartner Inc. announced last month. Hewlett-Packard Co. was second with a 16.4 percent share.

Worldwide shipments last year dropped to levels not seen since 2009, making it the “worst decline in PC market history,” Gartner said.

Record Shipments

Yang has helped Lenovo outpace industry growth by expanding share in markets across Europe, Japan and South America through acquisitions. In the past three years, the company’s purchases include Germany’s Medion AG, NEC Corp.’s PC division in Japan and Brazilian PC maker CCE.

At the same time, Yang diversified the company through sales of mobile devices.

Lenovo, which built its smartphone sales with inexpensive devices, is now pushing into the premium market with models such as the Vibe X smartphone that went on sale in China in October.

Smartphone shipments rose 47 percent to a record 13.9 million units in the quarter, the company said today.

The company will expand its share of the global smartphone market through the purchase of Motorola that was announced Jan. 29. The acquisition adds a brand established in the U.S. mobile market and would create the world’s No. 3 vendor. Motorola has reported falling sales as it lags behind Apple Inc. and Samsung Electronics Co. in smartphone shipments.

“We will relaunch and reintroduce the Motorola brand back to China and other emerging markets,” Yang said in a phone interview. “We will compete in the premium market, but this is not enough, we will also compete in the entry level.”

About 3,500 Motorola workers will transfer to Lenovo, Yang said.

Yang last month said the plan to buy the IBM server business, which was announced Jan. 23, would add a business with wider profit margins than PCs and give it about 14 percent of that market.

The company is looking at six to nine months for regulatory approval of the deals, Yang said.