Lenovo slumps after projecting China ‘hypergrowth’ to end

Lenovo Group Ltd. slumped the most in nine months after reporting slower sales and projecting the end of “hypergrowth” in the Chinese smartphone market.
The stock dropped 5.1 percent to HK$10.78 in Hong Kong, the biggest decline since Feb. 4. Revenue rose 7.2 percent in the three months ended September, the smallest increase since the quarter ending March 2013 and missing analysts’ estimates.
Chief Executive Officer Yang Yuanqing has expanded in computer servers and mobile phones, including the USD2.91 billion purchase of Motorola Mobility, to help combat a shrinking personal computer market. Growth in China is slowing amid increased competition from local smartphone producers, including Xiaomi Corp., which rose to become the third-biggest global vendor in the quarter ending in September.
“The industry is changing from in the past, when China grew much faster than the rest of the world,” Yang said in an interview. “China will not see further hypergrowth.”
Sales in the quarter were $10.5 billion, compared with the $11.3 billion average of 16 analyst estimates compiled by Bloomberg.
Second-quarter net income rose 19 percent to $262.1 million, beating the $259.8 million average of 12 analyst estimates compiled by Bloomberg, as Yang took advantage of Lenovo’s expanding scale to boost profit at more than twice the pace of sales.
“Seems like a very good cost control even in the face of weaker revenues,” Alberto Moel, a Hong Kong-based analyst with Sanford C. Bernstein & Co., said in an e-mail yesterday. “The company is focusing on margin expansion, which they achieved well.”
Lenovo also said Jerry Yang, the co-founder of Yahoo! Inc., will become a director of the company, which has headquarters in Beijing and Morrisville, North Carolina.
Lenovo, Xiaomi and other Chinese producers have packed high-end features into cheaper smartphones to drive growth in their home market, the world’s biggest.
Growth is slowing as the domestic market matures and consumer preferences shift, Yang said.
Still, Yang said he isn’t worried that Lenovo is stuck in a period of slowing growth with just-completed IBM and Motorola deals to provide a boost to sales.
Lenovo boosted global smartphone shipments by 38 percent in the quarter to 16.9 million units, ranking it fourth behind Samsung, Apple and Xiaomi, researcher IDC said Oct. 29. The figures didn’t include sales of Motorola devices.
The addition of Motorola, which was completed after the end of the quarter, would have lifted Lenovo to third place, according to IDC figures.
Even in the traditional PC business, Lenovo can continue to take advantage of industry consolidation to expand sales, Yang said in the interview.
While industrywide global PC shipments fell 0.5 percent in the three months that ended in September, Lenovo posted an 11.4 percent increase, researcher Gartner Inc. reported last month. Lenovo’s share of the market expanded to 19.8 percent from 17.7 percent a year earlier. Hewlett-Packard Co. was in second place with 17.9 percent, up from 17.1 percent.
Lenovo could expand its PC market share to 30 percent, Yang said without supplying a time frame.
“In the PC business, we still have the opportunity to grow the top line by growing market share,” Yang said. “The industry will further consolidate. Less players can stay, maybe four or five. Definitely, Lenovo will be the winner in this industry.” Bloomberg