Lenovo Group Ltd. (0992.HK) tumbled on Wednesday after quarterly revenue declined for the first time in more than six years on stalling demand for phones and computers, Bloomberg News reports.
Shares fell 10 percent in their biggest decline in two years.
The world’s largest PC maker said revenue dropped 8 percent in the three months to December, even as broadening cost cuts delivered a surprise rise in net income.
Lenovo is relying on cutting US$1.35 billion from annual costs and eliminating 3,200 jobs to shield its earnings from intensifying smartphone competition and a shrinking market for PCs, the report said.
While it’s expanding into other businesses, the company still gets more than half of revenue from a market that Intel Corp. last month warned was off to a “soft” start in 2016 amid tepid economic growth.
“The current fiscal quarter is the usual PC and mobile industry low season, and we expect mid-teen decline in sales on quarter-over-quarter basis,” Joseph Ho, an analyst at GF Securities (HK) Brokerage Ltd., told Bloomberg.
“2016 global PC shipments are likely to continue to decline, and it is important for Lenovo to continue to gain market share to deliver growth in the PC business.”
Lenovo said net income rose 19 percent to US$300 million in the third quarter. Analysts had expected earnings to fall to US$242.5 million.
The company’s smartphone division also broke even on an operational basis for the first time since Lenovo bought the Motorola brand from Google Inc. in 2014.
However, if charges including those related to the deal were taken into account, the business would have had a pretax loss of US$30 million, down from US$217 million in the prior quarter.
The company once hailed as a symbol of global ambitions for Chinese corporations now faces the twin challenges of a competitive global smartphone and PC environment and a home country growing at its slowest pace in a quarter-century.
Chief executive Yang Yuanqing is trying to grab greater market share in the US and Europe this year, pivoting away from intensifying competition back home.
The smartphone division should stay profitable in fiscal 2017 after the summer US launch of its “‘Tango” augmented-reality phone and a lower-cost structure help it gain market share globally, Yang told reporters on a conference call.
His upbeat comments come as Apple Inc. and Samsung Electronics Co. warn of moribund demand as markets get saturated and China slows.
“Some peers in the industry are warning, but we think the market is shifting in Lenovo’s favor,” Yang said. “We will not give up on China as well — the situation there has already hit bottom.”
Focusing internationally helped Lenovo lift the proportion of smartphone shipments from outside China to 83 percent from 59 percent.
Expansion into markets from India to the US helped shore up margins even as its global market share slipped about 1.5 percentage points to 5.1 percent in the period.
While Lenovo is increasing market share in PCs, industrywide PC shipments plummeted 10.6 percent in the fourth quarter, according to research firm IDC.
Lenovo managed to grow its share of that market to 21.4 percent versus runner-up Hewlett-Packard Co.’s 19.9 percent.
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