Lenovo Group Ltd. posted a second-quarter loss that was narrower than estimates, boosted by stronger sales growth and an improvement in its smartphone business.
For the second fiscal quarter ended September 30, 2015, Lenovo's quarterly revenue was US$12.2 billion, a 16 percent year-over-year increase or 23 percent year-over-year in constant currency. Net loss was $714 million.
Lenovo’s second quarter run rate pre-tax income shows a strong operational performance. The official HKFRS losses were driven by the realignment plans Lenovo disclosed during its Q1 results, including worldwide expense reduction actions across all businesses, the integration of the System x Business, the organization and brand alignment of Motorola and the Lenovo Mobile Business Group and clearance of smartphone inventory. Going forward, Lenovo expects these actions to drive meaningful run-rate cost savings of about $650 million in the second half of this year and about $1.35 billion on an annual basis.
"With strong execution, Lenovo acted swiftly and decisively to address challenges, while still delivering better-than-previous-quarter results," said Yuanqing Yang, Lenovo chairman and CEO. "Now, not only are we building a more competitive business model, but we are growing. In PC we hit record share with good profitability. In mobile, our strategy to shift our growth focus to outside of China continued to pay off, and we gained share and improved margin. The realignment of our organization and the restructuring of our cost structure will deliver results in the 2nd half of the year. In Enterprise, we reached an important milestone, growing revenue for the first time since our acquisition of System x. Digesting acquisitions and making transformations take time, but I am greatly encouraged by our strong results, and confident in both our near and long-term future."
In the PC Group, or PCG, which includes PCs and Windows tablets, Lenovo’s quarterly sales were US$8.1 billion, with pre-tax income of US$406 million, down 17 percent year-over-year with foreign exchange fluctuations hurting demand in EMEA and Brazil.
Lenovo remained #1 for the tenth consecutive quarter with a 21.2 percent market share, widening its lead over the #2 vendor. It shipped 15 million PCs in the quarter, with a 6.6 point premium to the overall market decline of 11.1 percent.
In the Mobile Business Group, or MBG, which includes products from Motorola, Lenovo-branded mobile phones, Android tablets and smart TVs, Lenovo quarterly sales were US$2.7 billion, up 104 percent year-over-year, due to the inclusion of revenues from Motorola. Motorola contributed US$1.4 billion to Lenovo’s MBG revenues.
In the 2nd quarter, aged inventory was cleared, the product portfolio was streamlined and new competitive products – such as the shatterproof DROID Turbo 2, Moto 360, and Vibe P1- were launched. A redesigned mobile product development cycle will ensure products will be competitive every season and every quarter. With restructuring complete, Lenovo believes the MBG business turn around remains on track to reach its break even goal in one to two quarters.
In Mobile, Lenovo volume was up 11 percent year-over-year with 18.8 million units sold, led by growth outside of China where it saw a 4.3 point increase in market share year-over-year driven by a shift in strategic focus outside of China. In the first half of this fiscal year, outside China accounted for 70 percent of volumes, while one year ago, it was only 19 percent. In key emerging markets of Indonesia, Russia, India and Brazil, Lenovo outgrew the smartphone market by 12, 175, 48 and 4 points respectively.
In the tablet market, Lenovo outgrew the market by almost 14 points with nearly 1 percent growth verses a market decline of 12.6 percent. It strengthened its worldwide #3 position with record high 6.3 percent market share, selling 3.1 million units and taking share from the #1 and #2 players.
In the Enterprise Business Group, or EBG, which includes servers, storage, software and services sold under both the ThinkServer and System x brands, sales were US$1.2 billion, up 5.5 times year-over-year due to inclusion of System x this year. System x had approximately US$900 million in sales.