Lenovo Books Loss on Charges on U.S. Assets

By Dan Strumpf and Joanne Chiu 

Lenovo Group Ltd. took a $400 million charge following the U.S. tax overhaul, pushing it to a net loss in the third quarter and missing analyst expectations as its mobile unit continued to struggle.

The Chinese PC-maker said Thursday that its third-quarter net loss was $289 million, compared with a net profit of $98 million a year earlier. Analysts had been expecting a profit for the period, which ended in December. A poll by S&P Global Market Intelligence forecast a net profit of $128 million.

Revenue rose 6% to $12.94 billion.

The company's mobile-phone business struggled, with revenue falling 5% to $2.1 billion. Like many mobile-phone makers, Lenovo is contending with slowing growth in the smartphone market, tougher competition from China-based rivals like Huawei Technologies Co. and higher component prices.

The challenges faced by Lenovo's mobile-phone business was partly offset by stronger PC sales, which rose 7.6% to $9.3 billion.

Technology companies have been dealing with the impact of the new tax code. Many tech firms have welcomed the overhaul, which reduces the corporate tax rate to 21% from 35%, and say it will improve earnings over time. But it has resulted in one-time charges on foreign-based cash piles for many U.S. companies.

Lenovo said its $400 million write-off was due to charges on noncash assets in the U.S. The company said it still expects the tax reform to benefit its U.S. operations over time.

"This would not impact any of our business," Lenovo Chief Executive Yang Yuanqing said of the tax charge. "To my knowledge, many American companies are doing the same."

Lenovo has been wrestling with the troubled acquisitions of U.S. phone brand Motorola Mobility and the low-end server business from International Business Machines Corp., which it has struggled to make competitive.

Mr. Yang said a memory chip shortage that weighed down its business last year has eased recently. "I think the supply situation is getting better, " he said.

Excluding the one-off items, Lenovo reported a 48% rise in third-quarter operating profit of $204 million, as its gross profit margin rose 0.4 percentage point to 13.5% during the period.

In the first nine months, Lenovo swung to a net loss of $222 million from a net profit of $428 million a year ago, while revenue rose 4% to $34.71 billion.

Write to Dan Strumpf at [e-mail] and Joanne Chiu at [e-mail]

(END) Dow Jones Newswires

February 01, 2018 00:25 ET (05:25 GMT)

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