Wednesday, 5 November 2014

Lenovo Earnings: What to Watch


Lenovo Group 0992.HK -0.35%, the world’s largest personal-computer maker by shipments, is scheduled to announce its earnings for its second quarter through September on Thursday. Here’s what you need to know

EARNINGS FORECAST: Lenovo is expected to report a net profit of $260.3 million for the three months through September, up from $219.7 million a year earlier, according to a poll of analysts surveyed by Thomson Reuters
REVENUE FORECAST: Analysts expect $11.32 billion in revenue, up from $9.77 billion a year earlier
–MOTOROLA INTEGRATION: Lenovo said last week that it had completed its $2.91 billion acquisition of Motorola Mobility. Investors and analysts are waiting for any updates on Lenovo’s integration plans. Motorola, which has been unprofitable under its previous parent, Google GOOGL +0.07%, plans to turn around its business by taking advantage of Lenovo’s efficient supply chain as well as economies of scale that could bring down material-procurement and logistics costs. Lenovo Chief Executive Yang Yuanqing has said that he expects to turn Motorola profitable within four to six quarters after the deal is sealed
–SMARTPHONE GROWTH: Combined with Motorola, Lenovo is now the world’s third-largest smartphone maker, according to research firms. Lenovo is already one of the largest smartphone makers in China, and the company has been expanding rapidly overseas for the past year, especially in emerging markets such as Southeast Asia and Eastern Europe. Motorola will continue to sell smartphones under its own brand name. Analysts are closely monitoring developments in Lenovo’s own smartphone strategy, and how well it can coexist with Motorola. Motorola will likely expand into more markets around the world under the Lenovo umbrella, and analysts will be watching for product launch plans
–IBM Server Integration: Last month, Lenovo completed its $2.1 billion acquisition of International Business Machines’ low-end server business. Along with its Motorola deal, the IBM IBM -1.05% server deal is part of Lenovo’s attempt to find new sources of expansion beyond the PC market, which is expected to see limited growth in coming years. Since Lenovo announced its plans to buy the IBM server unit in January, concerns among IBM’s customers about the transition have created opportunities for competitors such as Hewlett-Packard HPQ +0.11% and Dell to take market share from IBM. Analysts are watching for how quickly the former IBM unit can regain market share and further expand its business under Lenovo.
–ACQUISITION IMPACT ON EARNINGS: Lenovo executives have said earlier this year that the integration of the two major businesses – Motorola and the IBM server unit – would likely weigh on Lenovo’s earnings in the near term. Although analysts and investors have already factored in the potential impact from the two deals, they will still be watching the performances of Motorola and the server business in the coming quarters
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