Lenovo's Net Profit Up 80% But Revenue Falls as PC Demand Slows

HONG KONG—A year and a half ago, Lenovo Group Ltd. spent $5 billion to buy itself into growth sectors as the personal-computer market slowed. But return to growth hasn't come easily.

Lenovo, the world's largest PC maker by shipments, said Thursday that although cost cuts helped it raise its net profit by 80% in the quarter that ended March 31, revenue continued to fall due to slowing PC demand and currency fluctuations.

"Looking forward, the markets where the group is in will remain challenging in the short term," Lenovo Chairman Yang Yuanqing said in a statement.

Lenovo bought Motorola smartphones from Alphabet Inc.'s Google unit and International Business Machines Corp.'s low-end server business in 2014 to bolster itself against contraction in the global PC market.

But Lenovo has struggled to hold ground against Chinese smartphone rivals like Huawei Technologies Co. and Oppo, which gained market share in the first calendar quarter, while Lenovo fell out of the top five rankings, according to market research firm Gartner. Lenovo's server market share fell to 7.5% from 7.9% in the fourth calendar quarter, while IBM and Cisco Systems gained, according to the most recent figures from Gartner.

Lenovo met its target at the end of year to turn Motorola profitable, but it came at steep cost cuts. The company announced last August it would cut $650 million from expenses over the second half of last year, including staff reductions.

"Although the soft PC market outlook has put pressure on the topline growth of Lenovo, we believe Lenovo can continue to expand margins on its Lenovo-branded mobile business, and successfully turn around the emerging markets businesses to a modest degree of profitability," Bernstein Research analyst Alberto Moel wrote in a report ahead of the earnings.

Lenovo said its fiscal fourth-quarter net profit rose to $180 million from $100 million a year earlier thanks to lower operating expenses and employee benefit costs. Operating costs dropped by 23% in the quarter compared with a year earlier and employee benefit costs were lower due to the reduced head count, the company said. Analysts had expected a net profit of $173.7 million, according to the average forecast of 19 analysts polled earlier by Thomson One Analytics.

Revenue fell 24% to $9.13 billion in the quarter from $11.3 billion a year earlier, as sales fell across all regions.

Write to Eva Dou at [e-mail] and Anjie Zheng at [e-mail]

(END) Dow Jones Newswires

May 26, 2016 06:25 ET (10:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.