Lenovo sold more smartphones and tablets than PCs in the quarter and reported a strong profit that beat expectations. In addition, Lenovo CEO Yang Yuanqing said he thought organic growth was enough to keep the momentum going in the company's smartphone business, but he did not rule out acquisitions.
Lenovo said its net income climbed 23 percent to $173.9 million in the three months ending June 30, up from $141.4 million a year earlier. That beat the $167 million average of 10 analysts' estimates compiled by Bloomberg.
Most importantly, the company said smartphone sales more than doubled in the quarter to 11.4 million units, and that it sold 1.5 million tablets. Lenovo said it sold 12.6 million PCs in the period.
According to both Gartner and IDC, Lenovo was the No. 4 smartphone maker in the world in the second quarter, behind Samsung Electronics, Apple (NASDAQ:AAPL) and LG Electronics, and ahead of Chinese rival ZTE.
"The company is transforming itself from PC-based to smartphone- and tablet-based," Ricky Lai, an analyst at Guotai Junan International Holdings, told Bloomberg. "There is robust demand for tablets and smartphones especially in China and emerging economies."
In an interview with the Wall Street Journal, Yang said while Lenovo's tablet business is profitable, smartphones are not a "profit engine yet." He said the company's smartphone business in China is already profitable, "but we believe the business is still in the development phase. We are still trying to strengthen our market position and become a market leader in China, so we continue to invest on branding, sales channels and product development."
In the short term, Yang said, the company's "organic growth is still very strong. I'm confident that we can keep up this momentum at least for a couple of quarters. In the second half of this year, you will see more innovative products from us, both tablets and smartphones."
He added that the emphasis in the smartphone market is shifting from more high-end, premium devices to mass market smartphones and from developed to emerging markets, which should benefit Lenovo, which offers smartphones at a wide array of price points and can shift production quickly.
In light of BlackBerry's (NASDAQ:BBRY) announcement this week that it is once again looking at "strategic alternatives," including joint ventures, strategic partnerships or a sale of the company, speculation has been renewed that Lenovo might be a buyer.
"I believe that we can still grow fast organically," Yang said. "But if we see an opportunity for an acquisition that is consistent with our strategy, we would like to consider it."
Yang declined to comment on any specific deals. "We believe that the PC industry and the mobile phone industry will continue to consolidate," he said. "So Lenovo is definitely in a good position to become an important player. If a target or deal is consistent with Lenovo's strategy, we would take the opportunity."
Lenovo said in June it is in "preliminary negotiations with a party in connection with a potential joint venture transaction," according to a filing the company made with the Hong Kong stock exchange. Lenovo did not indicate which company it is working with. The company said it has not yet struck a deal with the unnamed potential partner.
- see this Bloomberg article
- see this NYT article
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this CNET article
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