Lenovo Group has announced quarterly revenue was $14,1-billion for the period ended 31 December 2014, showing a strong PC business and fast traction in the integration of its Motorola Mobility (Motorola) and former IBM System x, x86 server (System x) investments.
Third quarter pre-tax income before non-cash M&A-related accounting charges was $348-million, up 8% year-over-year. These non-operational, non-cash, M&A-related expenses totalled $74-million and included charges such as intangible asset amortisation and interest on promissory notes related to the Motorola and System x investments. Including these expenses, pre-tax income was $274-million, down 15% year-over-year. Similarly, third quarter net income was $253-million, down 5%, while net income before non-cash, M&A-related accounting charges was $327-million, up 23%.
Lenovo’s core PC business remains strong even as it drives a significant transformation and diversification with the addition of the Motorola and System x businesses. Balance has become a major strength for Lenovo: PCs now account for 65% of the company’s revenue, while Mobile delivers 24% and Enterprise contributes 9%. Just a year ago, PCs accounted for 81% of Lenovo’s business.
“This quarter, we are at the starting line of a new race, but the results show that we have the right strategy, we made the right acquisitions and we executed well globally, so I am confident we are ready to win,” says Yuanqing Yang, chairman and CEO of Lenovo.
“Our core PC business maintained its leading position and further improved profitability. The two newly acquired businesses are achieving great momentum in their first quarter of integration. They are definitely becoming our growth engines. Motorola is already a global strength: for the first time it sold more than 10-million units in the quarter and it is now re-entering the China market.
“Meanwhile, we have a strong start with the System x integration, even while we further refine and develop it, leveraging Lenovo’s operational excellence and efficiency to be even more competitive. I remain fully confident we will meet all of our financial commitments this year, and also that we are on the right track to win in the long term.”
The company’s gross profit for the third fiscal quarter increased 54% year-over-year to $2,1-billion, with gross margin at 14,9%. Operating profit for the quarter decreased 3% year-over-year to $325-million. Basic earnings per share for the third fiscal quarter was 2,32 US cents, or 17,99 HK cents. Net cash reserves as of December 31, 2014, totalled $1,3-billion.
In the PC Group or PCG, which includes PCs and Windows tablets, Lenovo sales were $9,2-billion with a record high pre-tax income (PTI) of $494-million. Lenovo shipped 16-million PCs in the quarter, up 4,9% year-over-year, for a total market share of 20%. Going forward, consolidation trends favour this business. Lenovo sold its 100-millionth ThinkPad laptop PC, marking a historic milestone for this legendary brand.
In the Mobile Business Group or MBG, which includes products from the Motorola investment, Lenovo-branded mobile phone business, Android tablets and TVs, Lenovo sales were $3,4-billion generating PTI of negative $89-million. Motorola shipped more than 10-million units, up 118% year-over-year, adding $1,9-billion to MBG’s revenues. Soon to re-enter China, Motorola is on track to be profitable within 4-6 quarters of close.
Combining shipments of Motorola and Lenovo-branded devices made Lenovo a truly global player, the third largest vendor of smartphones behind Samsung and Apple and their most credible challenger. Together, the two brands had nearly 6,6% market share, up 78% year-on-year. Global tablet market share was 4,8%, with 3,7-million shipments, up 9% year-over-year, powered by the launch of our latest Yoga tablet.
Lenovo now drives about 60% of its mobile phone volumes outside China, having entered 67 countries in the last two years. Lenovo has built the scale, distribution, brand assets and IP portfolio required to compete around the world and challenge the top two players. And, as smartphone trends move from premium to mainstream, and mature to emerging markets, Lenovo is in the best position to capture these next waves of growth and deliver its stated profitability commitments in the Motorola business.
In the Enterprise Business Group or EBG, which includes servers, storage, software and services sold under both the Lenovo ThinkServer brand and the System x business unit, sales were $1,2-billion. Sales of the System x unit were $986-million. Only 90 days into the integration of System x, EBG delivered positive operational PTI, although its standard PTI – which included non-cash, M&A-related items – was negative $42-million. It is solidly on track to be a $5-billion business with better margins than PC in 1 year.
Combined shipments of Lenovo ThinkServer and System x servers made Lenovo number 3 worldwide, with 10,4% market share. Despite the intense competitive fire in the year since Lenovo says it planned to acquire System x, its business is stabilising, with rapid success in China making it number one in that market, while benefiting from access to new opportunities in 160 countries that were previously unavailable to IBM or Lenovo.
Lenovo’s revenue in the Europe/Middle East/Africa (EMEA) geography during the third fiscal quarter saw continued growth and increased profitability with revenue up $1,6-billion, a 40% increase, to reach $4-billion, while margin improved by 1,2 points year-on-year to 3%. Powered by strong consumer performance, this success drove a record-setting contribution to Lenovo’s worldwide revenue of 29%. During the quarter, Lenovo had record PC market share of 19,6% in EMEA, up nearly 4,4 points. Lenovo achieved the number one position in PC across 13 EMEA countries, further improving its number two position in the EMEA PC market.
