Lenovo’s Q3 profit slumps 6% as mobile losses continue
Lenovo reported a sharp fall in results for its fiscal third quarter to December, driven by continued weakness in its mobile and server businesses. Revenue fell 6 percent year-on-year to USD 12.17 billion. While the PC and Smart Device division increased sales 2 percent to USD 12.17 billion, Mobile revenues fell 23 percent to USD 2.19 billion, and the Data Centre business dropped 20 percent to USD 1.05 billion.
The gross margin fell to 13.1 percent from 14.6 percent a year ago, and operating profit dropped to USD 138 million from USD 379 million. Net profit was just a third of the year-earlier result, at USD 98 million. While operating costs were down 3 percent year-on-year, Lenovo said the ratio of cost to sales increased, due in part to extra marketing costs for re-launching the Moto brand.
For the three months ended 31 December, the group shipped 15.7 million PCs worldwide, up 2 percent from a year earlier and better than the estimated 2 percent market contraction. The business market led the growth with an increase of 5 percent in shipments, while consumer shipments still fell 2 percent.
Lenovo said it also shipped 19.2 million PC plus tablet devices, an increase of 3 percent year-on-year against a market decline of 10 percent. The PC business remained profitable with a pretax result of USD 431 million, up 7 percent from a year ago.
The mobile business recorded a loss of USD 112 million, excluding non-cash M&A-related accounting charges. The loss was little changed compared to the previous quarter despite shipment growth, due to the increased branding and marketing expenses for new product launches and increased costs from constrained supply of key components.
Total smartphone shipments were down 26 percent year-on-year but rose 7 percent compared to Q2. Shipments fell in most regions, hurt by the demonetisation in India and tough competition in China.
Lenovo said it expects some pressure on component supplies and macroeconomic weakness to continue in the short-term. In the smartphone market it’s working on expanding outside China, while also revamping its product portfolio and sales channels in its home market. The company said it’s established a “new competitive operating model and organization structure to capture efficiency”, which is set to improve profitability in the mobile business over time.
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