Lenovo warns of end of 'hypergrowth' in Chinese smartphone market as Q3 mobile sales dip

Lenovo, which recently assumed the mantle of No. 3 global smartphone maker with the closing of its $2.91 billion acquisition of Motorola Mobility, nevertheless saw its mobile revenue slip in the third quarter. Further, CEO Yang Yuanqing warned of the end of "hypergrowth" in the Chinese smartphone market.

Still, the company was upbeat about its sales outside of China, and now that Motorola is a wholly-owned subsidiary Lenovo, the company will have a greater foothold in the U.S., Western Europe and Latin America.

On a companywide basis, the PC, smartphone and tablet maker said net profit in the third quarter increased to $262 million from $220 million in the year-ago period, largely in line with analysts' expectations, the Wall Street Journal reported. However, total revenue came in below analysts' estimates, rising 7 percent to $10.48 billion from $9.77 billion. Analysts had been expecting $11.35 billion, according to an estimate of 13 analysts measured by Thomson Reuters SmartEstimate.

Lenovo's total smartphone shipments jumped 38 percent year-over-year to 16.9 million in the third quarter, good for the No. 4 position worldwide, according to research firm IDC. However, if Motorola's sales had been included, Lenovo would have been No. 3, according to research firm Strategy Analytics.

Nonetheless, Lenovo's total mobile device revenues (smartphones and tablets) fell 6 percent year-over-year to $1.4 billion. Yang told the Journal that despite shipment growth, sales fell in part because many of the company's phones shipped near the end of the third quarter hadn't yet been recognized as revenue. "Smartphone revenue was not that exciting, it was a little bit of a problem," Yang told Reuters.

Lenovo has enjoyed a great deal of success in large part due to its strength in China, where it has packed higher-end features and specs into phones that are undercutting market leaders Samsung Electronics and Apple (NASDAQ: AAPL) on price. Yet Yang warned that Lenovo could not rely on China alone to be a growth engine.

"The industry is changing from in the past, when China grew much faster than the rest of the world," he told Bloomberg. "China will not see further hypergrowth."

Lenovo noted in its earnings presentation that it needs to be a global smartphone player to drive sustainable growth and that with the Motorola brand it can compete around the world in all key markets. Nonetheless, Lenovo continues to record notable increases in sales--for example, the company said its sales in Russia skyrocketed 400 percent from a year ago.

For more:
- see this release
- see this presentation (PDF)
- see this Bloomberg article
- see this Reuters article
- see this WSJ article (sub. req.)

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