Lenovo Posts Second Quarter 2014/15 Results

Leveraging innovation and execution strengths delivers share gains and margin improvements

Pre-tax income of US$329 million, earnings of US$262 million and US$10.5 billion in revenue make for solid quarter with balanced geographical growth
Achieved record high PC market share of nearly 20 percent; became #1 in the PC+Tablet category
Sold a record 35.6 million smartphones, PCs and tablets, almost 5 devices per second
Basic EPS of 2.52 US cents, or 19.54 HK cents
Net cash reserves of US$3.2 billion (as of September 30, 2014)

HONG KONG — (BUSINESS WIRE) — November 5, 2014 — Lenovo Group today announced results for its second fiscal quarter ended September 30, 2014. Quarterly revenue was US$10.5 billion, a 7 percent increase year-over-year. Second quarter profit grew even faster with pre-tax income increasing 24 percent year-over-year to US$329 million, while earnings grew 19 percent year-over-year to US$262 million. Lenovo’s execution focus and innovative products drove a record high of 35.6 million smartphones, PCs and tablets shipped globally.

With a consistent, effective game plan, the Company continues to deliver market share and profit improvements, while investing in the future. In the last two years, Lenovo has built leading global businesses in mobile and enterprise devices and laid the groundwork to rapidly accelerate its Ecosystem and Cloud Business. Today, these three businesses total 15 percent of Lenovo’s total revenue, up from 4 percent three years ago. Enterprise, which saw the launch of a new lineup of next generation ThinkServer products in September, is growing rapidly, with 35 percent year-over- year volume growth, while daily downloads on Lenovo App Store are now over 30 million, more than double one year ago.

“Lenovo had another strong quarter that saw excellent market share gains and profit expansion. Not only did we reach nearly 20 percent share in PCs, but we became #1 in the broader PC+ tablet market for the first time. In May, we set this as a two year goal, but achieved it in two quarters,” said Yuanqing Yang, chairman and CEO of Lenovo. “And in the last month, we successfully closed both our Motorola Mobility and IBM x86 acquisitions. With these two deals, we are now #3 in both businesses, but we are not satisfied. We will replicate our success in PCs by outgrowing the market to challenge the top two. Mobile and Enterprise are now our new growth engines, and over time, like PCs, they will become our profit pool as well.”

Further illustrating the evolving nature of its business is performance across smartphones, tablets and PCs. Lenovo became the number one PC+Tablet vendor for the first time ever, with 14.1 percent market share, up 1.2 percent year over year, a significant milestone that it met six quarters ahead of target. Making this possible was 3 million global tablet shipments, up 30.6 percent year-over-year, driven by sales outside China and strong performance in PCs, where for the sixth straight quarter Lenovo was the world’s largest PC vendor*. It had its highest-ever quarterly market share of 19.7 percent up 2.1 points year-over-year. Finally, Lenovo expanded smartphone shipments 38 percent year-over-year remaining #4 at the end of the quarter, although with the close of its Motorola investment last week, has secured the #3 position.

The Company’s gross profit for the second fiscal quarter increased 15 percent year-over-year to US$1.46 billion, with gross margin at 13.9 percent. Operating profit for the quarter grew 29 percent year-over year to US$365 million. Basic earnings per share for the second fiscal quarter was 2.52 US cents, or 19.54 HK cents. Net cash reserves as of September 30, 2014, totaled US$3.2 billion. Lenovo’s Board of Directors declared an interim dividend of 6 HK cents per share.

GEOGRAPHIC OVERVIEW

Lenovo’s China geography totaled US$3.8 billion in revenue in the second fiscal quarter, a decrease of 2 percent year-over-year, which accounted for 36 percent of the Company’s worldwide revenue, while overall margin improved by 0.5pts year-over-year to 5.8 percent. During the second quarter, Lenovo protected its PC leadership with 37 percent share and drove its PC segment operating margin to 7 percent. Lenovo continues to invest in 4G and is broadening routes to market to enhance competiveness in smartphones.

In the Asia Pacific geography, Lenovo’s revenue totaled US$1.6 billion for the second quarter, or 15 percent of the Company’s worldwide revenue, up 3 percent year-over-year, with record high operating margin of 4.4 percent, up 2.7pts year-over-year and record high PC market share at 16.0 percent, up 1.5pts year-over-year. Strong volumes in smartphone shipments were seen across the ASEAN region.

Lenovo’s revenue in the Europe/Middle East/Africa (EMEA) geography during the second fiscal quarter continued its rapid growth, up US$753 million, a 33 percent increase, to reach US$3 billion. This success drove a record setting contribution to Lenovo’s worldwide revenue of 29 percent. During the quarter, Lenovo had record PC market share of 19.3 percent in EMEA up nearly 44 percent. Lenovo achieved the #1 position in PC across 16 EMEA countries, strengthening its #2 position in the EMEA PC market.

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