Lenovo sees booming Q2 sales, looks to emerging markets for smartphone growth

Lenovo reported booming sales and profit for the second quarter and the Chinese vendor is looking beyond its homeland to emerging markets for future smartphone growth, according to CEO Yang Yuanqing. The Lenovo chief is eagerly awaiting the finalization of its purchase of Motorola Mobility, which he said will give Lenovo a leg up in North America and Latin America.

Lenovo CEO Yuanqing Yang

Justin Sullivan/Getty Images News

Lenovo said profit for the second quarter, its fiscal first quarter, jumped 23 percent to $213.5 million, up from $173.9 million in the year-ago period and beating analysts' estimates, according to Bloomberg. Total revenue climbed 18 percent to $10.4 billion, up from $8.79 billion a year earlier.

Research firm IDC said Lenovo was the No. 4 smartphone player in the world in the second quarter, with 5.4 percent market share, as smartphone sales jumped nearly 39 percent to 15.8 million units. While Lenovo did not disclose specific figures, the company said smartphone shipments in the quarter jumped more than fourfold outside of China.

In an interview with the Wall Street Journal, Yang noted Lenovo is still on track to close its $2.91 billion purchase of Motorola by the end of the year. He said the business is complementary to Lenovo's existing business and that Motorola's new products are showing strength in Western Europe and India. According to a report last month in The Information, Motorola currently expects to sell between 28 and 32 million smartphones this year, up from about 16 million in 2013.

"We are encouraged by Motorola's improvements. Their results for the latest quarter are much better than the previous year," Yang said. "Our commitment is we will turn around Motorola in four to six quarters. Today, I'm even more optimistic about meeting that target."

Yang noted that in China Lenovo has expanded its sales channels outside of carriers and online, and said in China Lenovo will look to balance growing its market share with profitability, adding that "our smartphone business in China make a little bit of money, but not so much."

However, Lenovo has grand ambitions for growth outside of China. "Although China is still the most important market for our smartphone business, we think we have even more opportunities outside China, particularly in emerging markets," he said. "In the quarter through June, our smartphone shipments grew almost 300 percent in Southeast Asia and more than 500 percent in Eastern Europe. Those are our future potential markets, so we definitely put more effort and more resources into those markets. Profitability in those markets is actually better than that in China. Not only can those markets give us growth, but they can also give us profit."

Lenovo faces tough competition inside and outside China from Huawei, the world's No. 3 smartphone player, as well as industry leader Samsung Electronics and smaller vendors like ZTE and Xiaomi. Samsung just unveiled the Galaxy Alpha, a mid-range smartphone with a metal banded construction that will be priced lower than its flagship Galaxy S5.

Yang said that the shift away from premium, high-end smartphones toward more mid-tier and mass-market phones could give Lenovo an edge on Samsung.

"We have seen this before in the PC market, and we have a lot of experience in these kinds of transitions," he said. "We know how to develop products for mainstream and entry-level markets. We have good supply chain management. We know how to balance innovation with efficiency."

For more:
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

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