Lenovo posted its first quarterly revenue decline in more than six years in the face of slack demand for PCs and smartphones that is hurting the entire industry.
At the same time, however, the company’s cost-cutting efforts paid off as it posted a surprising 19 percent jump in profit in its fiscal third quarter.
Investors seemed to focus on the company’s slumping sales. Lenovo’s stock-like American depositary receipts closed Wednesday at $17.18, down $1.30.
Lenovo, the No. 1 PC maker and No. 4 in smartphones, is based in China but has a headquarters in Morrisville. It employs 3,000 workers in the Triangle.
Revenue for the quarter totaled $12.9 billion, down 8 percent. Sales fell 2 percent after adjusting for currency fluctuations.
Net income totaled $300 million, or $2.70 per share, up from $253 million a year ago and a rebound from the previous quarter when the company posted its first loss in years. Analysts polled by Bloomberg News had anticipated that net income would decline from a year ago to $242.5 million.
Lenovo’s solid return to profitability was especially notable given that it happened “during a tough time in the market,” Chris Frey, vice president and general manager of North American commercial sales, said in an interview.
Lenovo’s strategy in the face of a market that is expected to remain challenging in the short-term is to continue to grow – without sacrificing profits – by winning market share from competitors.
CEO Yuanqing Yang told analysts during a conference call that the company is seeing the benefits of the restructuring initiated in August that is expected to generate $1.35 billion in annual savings. Among the restructuring moves was the elimination of 3,200 white-collar jobs worldwide, or about 5 percent of the company’s total workforce, including 230 layoffs locally.
Most importantly, Yang said, the company’s mobile business turned the corner by breaking even on an operating basis.
“The means we delivered our commitments to turn this business around within four to six quarters after our acquisition of Motorola,” Yang said. Lenovo purchased the Motorola business from Google in the fall of 2014.
Mobile sales fell 4 percent to $3.2 billion from the year-ago quarter, which included two months of Motorola results. Motorola’s shipments jumped 25 percent compared to the prior quarter, thanks to a flurry of new products.
PC sales fell 12 percent to $8 billion even though the company’s shipments outpaced the market and it widened its market share to 21.6 percent.
“For 11 consecutive quarters, we’re the No. 1 PC company on the planet,” Frey said. Lenovo’s publicly stated goal is to reach a 30 percent worldwide market share.
Revenue of the enterprise business group, which includes servers and storage devices, was a bright spot. Sales rose 8 percent to $1.3 billion.
In the U.S., PC shipments jumped 21 percent despite a four percent decline in the market. Frey said that robust growth was balanced, with gains recorded in both the consumer and business markets.