Lenovo annual profit up 1 percent, missing forecasts, amid China smartphone competition

Thu May 21, 2015 7:32am EDT
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BEIJING/HONG KONG (Reuters) - Lenovo Group Ltd (0992.HK: Quote), the world's biggest PC maker by sales, said on Thursday its annual net profit rose 1 percent to $829 million, slightly below analyst expectations, as intense competition in the Chinese smartphone market eroded margins.

Analysts had forecast a net profit of $857 million.

Revenue during the 2014/15 financial year rose 20 percent to $46.3 billion as Lenovo expanded its share of the shrinking PC market to one-fifth. In the fourth-quarter alone, revenue rose 21 percent to $11.3 billion.

Lenovo said PC sales, by far the group's largest business, rose across all geographic regions but targeted Europe in particular as an area of potential growth. PC sales to businesses rose 3 percent year-on-year despite a 3 percent drop in the broader market, it added.

Speaking to reporters in Hong Kong on Thursday, Yang acknowledged Lenovo's smartphone business was flagging on its home turf, a slowing market characterized by intense competition and razor-thin margins.

Industry analyst group IDC said last week smartphone shipments in the world's most populous country shrank for the first time in six years as the market became saturated.

Yang said the company needed to improve profitability in China after the smartphone division's performance crimped Lenovo's overall operating margin in China.

"We have encountered bigger challenges in China during the past few years," Yang said. "Our advantage was at the carriers sales channels in the past, but now we need to rebuild our retail and online sales channels."

Lenovo, whose phones are selling well in markets outside China, recently launched a sub-brand called ShenQi that is sold only online in a bid to attract young, price- and fashion-conscious buyers and ward off Internet-based rivals like Xiaomi Inc XTC.UL.   Continued...

A woman tries a Lenovo tablet on display during a news conference announcing the company's annual results in Hong Kong May 21, 2014. REUTERS/Bobby Yip