Impressive Earnings
Lenovo Group Limited (PINK:LNVGY) boosted investor confidence with its latest earnings report. For its fiscal year ending March 31, the company reported a net profit of $126.9-million, up 90% year-over-year (YOY) from $66.8 million. Revenues ballooned to $7.8 billion, up 4.5% YOY. The company recorded a gross profit of $963 million, up 20% from last year Gross margins remain strong, sitting at 12.3%. Operating profit climbed to $169 million, up 67% YOY. Lenovo’s Board of Directors declared a final dividend of 1.81 cents for the fiscal year ended March 31, 2013.
China
Beijing-based Lenovo Group Limited (PINK:LNVGY) introduced its first smartphone to customers in China during the first fiscal quarter of 2010, following the acquisition of Lenovo Mobile to tap into the growing market for mobile Internet devices. Since then, Lenovo has competed well in China—the biggest smartphone market by volume—against its local rivals ZTE Corp., Coolpad and Huawei Technologies Co.
In the quarter ended March 31, Chinese consumers purchased 67.4 million smartphones. Samsung Electronics topped the Chinese smartphone market with its Galaxy line of smartphones in the mid-low price segments. According to research firm Strategy Analytics, Samsung sold 12.5 million smartphones and gained 18.5% market share, up 2.2% from the previous quarter. Lenovo Group Limited (PINK:LNVGY) sold 7.9 million smartphones and captured 11.7% market share. Samsung may continue to deliver strong volumes in China and global markets during the second quarter with its highly demanded flagship Galaxy S4 smartphone.
Huawei edged Lenovo with 12% market share, placing Lenovo as the second largest local smartphone vendor.
| Smartphone Vendor | Shipments (millions) | Market Share % |
| Samsung | 12.5 | 18.5% |
| Huawei | 8.1 | 12% |
| Lenovo | 7.9 | 11.7% |
| Coolpad | 7.0 | 10.3% |
| ZTE | 6.4 | 9.4% |
| Apple | 6.1 | 9% |
Source: Strategy Analytics
On May 16, Lenovo Group Limited (PINK:LNVGY) released the K900 in China—the company’s latest smartphone. Lenovo wants to increase its market share in price segments where it lacks presence. The K900 retails for a suggested price of ¥3,299 (about $538). It targets the high-end smartphone market where customers search for different options other than Samsung’s Galaxy S4 and Apple Inc. (NASDAQ:AAPL)‘s iPhone 5. The K900 aims to fulfill that demand.
United States
Lenovo Group Limited (PINK:LNVGY) is not against the idea in taking its smartphone business outside of China. Since last year, the company has successfully entered and sold its smartphones in emerging markets, including Indonesia, India, Malaysia, Philippines, Russia and Vietnam. Lenovo’s main objective is to enter the European and U.S market to bolster brand recognition.
Mr. Yuanqing shows an interest in forming strategic alliances and acquisitions in North America to help the company compete in the U.S market. “If an acquisition helps us build capability, we would consider it,” he told the Wall Street Journal in an interview.
Wong Wai Ming, Lenovo Group Limited (PINK:LNVGY)’s CFO, shared the same outlook when interviewed at the World Economic Forum meeting in Davos, Switzerland. “We are looking at all opportunities—Research in Motion (now Research In Motion Ltd (NASDAQ:BBRY)) and many others. We’ll have no hesitation if the right opportunity comes along that could benefit us and shareholders,” Mr. Ming said.
BlackBerry: Licensing Opportunity
According to a Bloomberg report, “Lenovo has spoken to Research In Motion Ltd (NASDAQ:BBRY) and its bankers about various combinations or strategic ventures.” Lenovo purchasing BlackBerry is highly unlikely due to Canadian and U.S regulations. Lenovo needs the approval from regulators because the transaction would exceed $344 million. Lenovo said its cash reserves of $3.1 billion gives the company an opportunity to pursue acquisitions, but BlackBerry may be out of the question.
BlackBerry has looked into licensing its BlackBerry 10 operating system for low-cost entry-level devices. A strategic alliance between Lenovo Group Limited (PINK:LNVGY) and Research In Motion Ltd (NASDAQ:BBRY) would benefit both parties. BlackBerry would provide the sales channels needed for distribution and differentiate Lenovo’s smartphones from the Android community with the BlackBerry 10 platform.
BlackBerry’s presence in China is non-existent. Lenovo utilizing the BlackBerry 10 platform in China would increase BlackBerry awareness. It would form additional revenue streams, increase the number of subscribers and improve Research In Motion Ltd (NASDAQ:BBRY)’s market position in China.
In the PC market, Lenovo Group Limited (PINK:LNVGY) made a number of strategic investments to expand its PC business. It made five purchases in 2011, including the PC units of Tokyo-based NEC Corp. and German-based PC maker Medion AG. Last year, the company acquired Comércio de Componentes Electrônicos (CCE), a Brazilian manufacturer of PCs and consumer electronic products, for $147 million. With these acquisitions, the company has outperformed the declining PC market with impressive sales and margins, while stealing PC market share from Hewlett Packard and Dell.
Lenovo may need to purchase or form business relationships in North America to enter the U.S market. Lenovo Group Limited (PINK:LNVGY) aims to sell 50 million smartphones this fiscal year, but it needs to diversify its smartphones, increase its marketing budget and ramp up its distribution channel if it wants to lure customers away from Samsung and Apple Inc. (NASDAQ:AAPL).
Christopher De Sousa has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Lenovo Seeks to Bring Chinese Success to U.S Smartphone Markets originally appeared on Fool.com.
Christopher is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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