Whom You Know: LENOVO’S THIRD QUARTER FY 2016/17 RESULTS LED BY GROWTH IN PC BUSINESS

Thursday, February 23, 2017

LENOVO’S THIRD QUARTER FY 2016/17 RESULTS LED BY GROWTH IN PC BUSINESS

Lenovo Group (HKSE: 992) (ADR: LNVGY) today announced results for its third fiscal quarter ended December 31, 2016. Quarterly revenue was US$12.2 billion, a six percent decrease year-over-year. Third quarter pre-tax income was US$101 million, a 68 percent decline year-over-year. Net income fell 67 percent year-over-year to US$98 million.

Lenovo faced sizeable challenges in its three main lines of business, namely data center, mobile devices, and PCs and smart devices, all three industries that according to analysts’ reports continued to experience either slow growth or no growth during the quarter ended December 31, 2016.

“Despite ongoing macro-economic uncertainties and the two new businesses still in transition, Lenovo delivered a solid performance last quarter,” said Yang Yuanqing, Lenovo Chairman and Chief Executive Officer. “Our PC business remains strong, our Mobile business has made steady progress, and our Data Center business now has a clear improvement plan in place. Although it takes time to build the core competence in these two new growth engines, we are confident to achieve breakeven and profitable growth in them.”

The Company’s gross profit for the third fiscal quarter decreased 15 percent year-over-year to US$1.6 billion, with gross margin at 13.1 percent. Operating profit for the third quarter was US$138 million, down 64 percent year-over-year. Basic earnings per share for the quarter was 0.90 US cents, or 6.98 HK cents. As of December 31, 2016, Lenovo’s net cash was US$155 million.

Business Group Overview

In the third fiscal quarter, sales in our PC and Smart Devices (PCSD) Business Group, which includes PCs and tablets, was US$8.6 billion, an increase of two percent year-over-year. Quarter-to-quarter, our PCSD business grew a healthy 10.2 percent. Pre-tax income was US$431 million, an increase of seven percent year-over-year. Pre-tax income margin improved by 0.2 points year-over-year to five percent.

Helped by strong growth in North America, where Lenovo increased its shipments by 14 percent year-over-year, the Company shipped a total of 15.7 million PCs worldwide during the quarter. This is an increase of two percent year-over-year, and four points better than the industry as a whole, when compared to a total industry decrease of two percent for the same period. With record-high market share in China, Europe/Middle East/Africa region and Latin America, Lenovo remained the worldwide PC market leader with a record 22.4 percent market share.

Lenovo also saw strong growth in tablets, up ten percent year-over-year, outperforming the market by 29 points, as well as significant year-over-year increases in high-growth product lines such as gaming PC (up 71 percent), Chromebook (up 76 percent ), and detachables (up 91 percent). These are all product lines that Lenovo is ramping up, typified by our new Legion-branded series of gaming laptops launched last month at CES.

In our Mobile Business Group, which includes Moto and Lenovo-branded smartphones, Lenovo’s quarterly sales were US$2.2 billion, a decrease year-over-year of 23 percent, but an indicative seven percent increase over last quarter, driven by strong growth in mature markets. Pre-tax loss margin for the quarter improved by 0.6 points quarter-to-quarter to 7.1 percent.

With 15 million smartphones shipped in the third quarter, Lenovo improved seven percent quarter-to-quarter, including a 20 percent increase in shipments of Moto-branded products. Moto G shipments were up 12 percent year-over-year, aided by an increase in Latin America alone of 23 percent. In India, the world’s third-largest smartphone market, Lenovo was a strong smartphone supplier with 9.9 percent market share in the third quarter.

For Lenovo’s Data Center Group (DCG), which includes servers, storage, software and services, sales in the third fiscal quarter were US$1.1 billion, down 20 percent year-over-year, and three percent quarter-to-quarter. With large quarter-to-quarter revenue gains in North America (up 27 percent), Latin America (up ten percent), and Europe/Middle East/Africa region (up nine percent), Lenovo’s DCG business showed signs of improvement quarter to quarter.

Lenovo continued its focus on the transformative actions that will help drive long-term DCG competitiveness, such as strengthening our sales teams, investing in the channel, revamping our product lines, building our brand strategy, and adding new partnerships. For example, we have fortified our Global Accounts team, our sales group that services Fortune 500 clients, and saw growth in our DCG business there for the quarter grow 37 percent year-over-year.

Geographic Overview

In China, in the third fiscal quarter, Lenovo recorded consolidated sales of US$3.5 billion, a two percent decrease year-over-year, but an eight percent increase quarter-to-quarter. China represented 28.5 percent of the Company’s total worldwide third quarter sales. Pre-tax income in China increased eight percent to US$180 million year-over-year, with pre-tax income margin gaining half-a point to 5.2 percent.

In Asia Pacific, Lenovo had consolidated sales in the third fiscal quarter of US$1.7 billion, a decrease of 14 percent year-over-year, representing 14 percent of the Company’s total worldwide sales. The region had a pre-tax loss of US$41 million and a pre-tax loss margin of 2.4 percent.

In Europe, Middle East and Africa, consolidated sales in the third fiscal quarter declined 2.7 percent year-over-year to US$3.4 billion, but increased a robust 23 percent quarter-to-quarter, or 27.6 percent of the Company’s total worldwide sales. The pre-tax loss was US$102 million with a pre-tax loss margin of three percent.

In the Americas, consolidated sales were US$3.6 billion, down eight percent year-over-year, or 29.9 percent of Lenovo’s total worldwide sales during the third fiscal quarter. Pre-tax income was US$39 million, with a pre-tax income margin of 1.1 percent.

About Lenovo

Lenovo (HKSE: 992) (ADR: LNVGY) is a US$45 billion global Fortune 500 company and a leader in providing innovative consumer, commercial, and enterprise technology. Our portfolio of high-quality, secure products and services covers PCs (including the legendary Think and multimode YOGA brands), workstations, servers, storage, smart TVs and a family of mobile products like smartphones (including the Motorola brand), tablets and apps. Join us on LinkedIn, follow us on Facebook or Twitter (@Lenovo) or visit us at www.lenovo.com.

Recent Testimonials by Brand Ambassadors on their Experience with Whom You Know

"I work with Peachy Deegan because she's prolific at what she does. She's a hard worker, she's thoughtful and she's tasteful at what she writes which is very important. Peachy gets the facts correct, and just that alone is worth its weight in gold."

-Edward Tricomi, Master Stylist and Owner of Warren-Tricomi
https://warrentricomi.com/

"No one has yet to express their taste for our cuisine better than Peachy Deegan on Whom You Know. Thank you for transforming our flavor into words, unlike any other before.
Sometimes WHOM YOU KNOW, really makes a difference and Ammos Estiatorio is grateful to know Peachy Deegan!"
-
Dimitris Nakos, Founder and Owner of
Ammos Estiatorio
https://ammosnewyork.com/

“Whom You Know has done an amazing job of featuring our company over many years [seven]. Peachy has worked tirelessly to create a well-curated selection of topics and brands that are clearly of relevance to her growing audience of readers. Her articles are filled with great insights based on first-hand experience. She does her research, knows her business and is a pleasure to work with!”

-David Sasuga, Owner of Fresh Origins Microgreens
www.FreshOrigins.com

"Peachy Deegan has the pulse of the nation and highlights exceptional opinion leaders in more than 23,000 inspiring and entertaining posts. Her 100,000 twitter followers are a true testimony to Peachy’s ability to inspire, motivate and entertain. She is a feminine force to be reckoned with and an exemplary example of an influential voice in today’s world."

-Mica Mosbacher, author of the new book The Hurricane Factor: Stormside Patriots and tv political commentator

"It was an honour to be chosen for Movers and Shakers by Peachy Deegan. The questions in the interview were intelligent and insightful and I thoroughly enjoyed answering them. The reaction to the interview has been overwhelmingly positive and has helped bring my art practice to a wider audience."
-Damien Flood, Internationally Acclaimed Artist
http://www.damienflood.ie/

"We were so fortunate to hit Peachy’s radar. Her review of our Warmies was spot-on and came at a great time in our company’s early history.
Peachy has such a strong relationship with her readers. She provides honest and real comments; she is truly a trusted source in a very large circle
of consumers."
-Scott Wehrs
President
Intelex U.S.A.
http://www.intelexusallc.com/

"We at Primola love working with Whom You Know and are proud to have been a highly-ranked Manhattan restaurant by Peachy Deegan since 2012, and are featured seasonally. We appreciate the fantastic work Peachy does highlighting our cuisine with her sublime writing style and the whole neighborhood of the Upper East side. Also, we are glad that she has started a Made in Italy column! If you have the opportunity to be considered for review, we'd highly recommend working with her."
-Giuliano Zuliani, Owner of Primola Restaurant
https://www.facebook.com/Primola-Canaletto-restaurants-NYC-135616799831091

"
Peachy Deegan is a gem. She is wonderful to feature our Irish brands in 'Whom You Know'! The articles are beautifully and passionately presented, bringing products and brands to life, making both relevant and fun for her many faithful followers to read. I am immensely proud for our hand-crafted products to be included in this venue!"

-
Bill Follett
President, Belleek Group North America
www.Belleek.com

"As you know from my past features, Peachy Deegan and I were in the same class at Boston College prior to either of us becoming entrepreneurs. When we played together on the BC Alumni softball team in Central Park years ago, she mentioned she could not find a great dentist in Manhattan and could often be found networking on her phone in the outfield hiding from the ball. She was my second patient ever in 2006 when I opened my dental practice; I was one of the first sponsors on Whom You Know and the first Mover and Shaker featured in 2009 and have worked with her continuously since. She's even talked her friends that are doctors into being my patients, and they subsequently send their hospital colleagues. I don't know anyone that is as great of a networker and writer as Peachy, nevermind that she is upstanding and always good for her word. Cosmopolitan Dental is so happy to be in the company of the caliber of major brands she works with today, and although she will tell you a million ways to get your teeth dirty between Peachy's Picks, Terrific Takeout and Peachy's Pantry, Peachy Deegan will tell you there is only one way to get your teeth clean!"
-Dr. Garo Nazarian, Founder and Owner of Cosmopolitan Dental
http://cosmopolitandental.com/