Shares of No. 1 PC maker Lenovo fell 5 percent after the company reported fiscal second-quarter revenue that fell short of estimates – even though its net income exceeded expectations.
A 2 percent decline in sales in the China market, which has long been a growth engine for Lenovo, put a damper on the company’s revenue. China accounted for 36 percent of worldwide revenue.
Overall revenue rose 7 percent to $10.5 billion, but analysts polled by Bloomberg News had been projecting sales of $11.3 billion.
“The industry is changing from the past, when China grew much faster than the rest of the world,” CEO Yang Yuanqing told Bloomberg in an interview. “China will not see further hypergrowth.”
Lenovo is based in China and has a headquarters in Morrisville.
Net income rose 19 percent to $262 million. That outpaced the $259.8 million analysts were projecting.
“We continue to deliver our commitment to improving profitability,” Yang said during a conference call.
Sales of higher-margin PCs during the quarter helped boost profitability, Wong Wai Ming, chief financial officer, said during the call.
PC sales in North America outpaced the market, enabling the company to gain nearly one-half a point of market share, and revenue rose “right around the double-digit range,” Jay Parker, president of North American operations, said in an interview.
“Maybe as importantly, we actually here in North America improved margins by a point over last year,” Parker said. “Ultimately, that resulted in record profitability in North America.”
Parker said that the average selling price of its products has been rising, particular in its consumer line-up. That includes strong sales of Yoga “convertibles” that function as both a laptop and a tablet.
Lenovo’s shares in Hong Kong closed Thursday at $10.78, down 58 cents.
The company’s stock-like American depositary receipts, which are traded in the U.S., were trading at $27.79, down $1.79, Thursday morning.
Lenovo has been the top PC maker for six consecutive quarters and boosted its worldwide market share to 19.7 percent, up 2.1 percentage points from a year ago. The company also is No. 3 in tablet sales, with tablet shipments rising 30.6 percent.
Smartphone shipments rose 38 percent from a year ago. Lenovo has been diversifying beyond PCs, which has become a slow-growth market. It sells smartphones in 45 countries.
The third-quarter earnings don’t reflect the company’s recently completed major acquisitions: the $2.91 billion of the Motorola Mobility mobile phone business from Google and the $2.1 billion acquisition of a line of servers from IBM.
With those deals, Lenovo rose from tied at No. 4 to No. 3 in the worldwide smartphone market and also jumped to No. 3 in the global server market. The Motorola acquisition also moves Lenovo into the U.S. smartphone market for the first time.
The addition of former IBM employees boosted the company’s Triangle workforce by 1,300 workers – from 2,200 to 3,500.
Lenovo is gearing up for the all-important holiday sales season with “some major marketing and merchandising efforts,” Parker said. “Just this week a major Yoga advertising campaign kicked off on network television in partnership with Microsoft.”
Those ads extol the benefits of the Yoga versus Apple’s MacBook Air.
“We are very excited about it and think this it will be a huge boon to our consumer business this holiday,” Parker said.