Lenovo posted its first quarterly loss in years as a result of hefty restructuring costs, but the company’s return to double-digit revenue growth produced better-than-expected overall results.
CEO Yuanqing Yang declared during a conference call that “the worst is over” for Lenovo.
“We are fully charged, ready to resume the momentum in the second half of the (fiscal) year and grow in the longer-term,” he said. “And we are confident that our company will enter a new era of strong growth.”
The world’s No. 1 PC maker posted a net loss of $714 million for its second fiscal quarter that ended Sept. 30, whereas analyst polled by Bloomberg News were anticipating a loss of $803 million. A year ago, Lenovo posted a net profit of $262 million.
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The results were weighed down by $599 million in restructuring costs and a one-time charge of $324 million to clear smartphone inventory.
The restructuring initiated in August, triggered by a tough sales environment and the disappointing performance of the Motorola mobile phone business it acquired last fall, included layoffs of about 3,200 white-collar workers worldwide, or 5 percent of the total workforce, including about 230 Triangle employees.
Yang said that the restructuring was on track to deliver more than $1.35 billion in annual savings, including more than $650 million in the second half of this fiscal year.
“Most importantly, our cost structure is now among the most competitive of the industry in all our businesses,” he said.
Revenue rose 16 percent to $12.2 million, ahead of estimates and well above the 3 percent growth the company posted in the immediately preceding quarter. Moreover, revenue in the latest quarter rose 23 percent after adjusting for currency fluctuations.
The revenue gains were bolstered by the acquisitions of the Motorola smartphone business and a line of servers from IBM.
Sales of the mobile business group, which includes mobile phones and Android tablets, totaled $2.7 billion, up 27 percent from the previous quarter. Motorola sales totaled $1.4 billion.
Yang said the company’s focus on selling mobile phones outside of China is paying off. In the first half of the fiscal year, mobile sales outside of China accounted for 70 percent of total volume, up from 19 percent a year ago.
He also said the Motorola business is expected become profitable in the next quarter or two, in line with prior forecasts.
Sales of the enterprise business group, which includes servers and storage devices, totaled $1.2 billion. That was up 2 percent from a year ago on a pro forma basis – that is, accounting for the System X servers acquired from IBM as if they were part of Lenovo a year ago – and marked the first time that the overall business has grown since the IBM deal.
The System X servers acquired from IBM accounted for about $900 million in sales.
Sales of PCs fell 7 percent despite shipments that outpaced the market, boosting Lenovo’s market share to a record high of 21.2 percent, the company noted. Lenovo has been No. 1 in worldwide PC shipments for ten consecutive quarters.
The company said its North American PC market share rose to a record 13.3 percent.
“We outgrew the market by 24 percent, which is a significant milestone,” Chris Frey, vice president and general manager of North American commercial sales, said in an interview.
Frey added that Lenovo’s PCs are well-positioned for the upcoming holiday season after landing for the first time on the shelves of Costco and Walmart stores nationwide over the summer.
“We expect ... that by entering those two retail outlets, we will see significant holiday sales that should far outpace last quarter,” he said.
Frey also noted Motorola mobile phone sales continue to accelerate across North America, “specifically around the announcement of the new Droid device through Verizon that has the unbreakable screen, which we think during the holiday will give us a significant uptick.”
Lenovo is based in China but has a headquarters in Morrisville. It employs nearly 3,000 workers in the Triangle and 58,000 worldwide.
The company’s stock-like American depositary receipts closed Thursday at $19.58, up 88 cents.