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Lenovo third-quarter profit beats estimates on smartphone boost

Lenovo's Q3 net income declined 4.6 percent to $253 million, but the company came in better than expected after its Motorola acquisition.

Lenovo expects Motorola to be profitable in four to six quarters. Sarah Tew/CNET

Lenovo recorded a drop in third-quarter profit that beat analysts' estimates as it expanded its footprint in the smartphone market.

The China-based PC giant announced Thursday that net income for the quarter ended December 31 was $253 million, a 4.6 percent decline from the $265 million recorded a year ago -- but better than the $182.4 million average analysts' estimates compiled by Bloomberg.

As the first quarter to include acquisitions of Motorola Mobility and IBM's x86 server business, both of which closed in October, the third quarter represented the first test of the company's push into areas beyond consumer PCs.

Lenovo's mobile unit, which includes products from its acquisition of Motorola Mobility, topped 10 million smartphone shipments for the first time. The unit, which also includes Android tablets and TVs, recorded sales of $3.4 billion in the quarter, an increase of 118 percent from the year-ago period. Combined with the Motorola unit, Lenovo had a 6.6 percent global marketshare, a 78 percent increase over the previous year's quarter.

The company expects the Motorola unit to return to profitability in the next four-to-six quarters, thanks largely to its re-entry in the China market. Lenovo, already the No. 2 smartphone maker in China, is positioning Motorola to compete with high-end smartphone makers Apple and Samsung.

Lenovo's PC unit, which typically accounts for most of the company's revenue, shipped 16 million units in the quarter, a 4.9 percent increase over the same period a year earlier. The company commands a 20 percent share of the market but expects consolidation for the quarter.

"This quarter, we are at the starting line of a new race, but the results show that we have the right strategy, we made the right acquisitions and we executed well globally, so I am confident we are ready to win," Lenovo CEO Yuanqing Yang said in a statement. "The two newly acquired businesses are achieving great momentum in their first quarter of integration. They are definitely becoming our growth engines."

Companywide, Lenovo's revenue came in at $14.1 billion, a 31 percent increase over the year-ago period and outpacing the $13.5 billion average of 20 analysts' estimates compiled by Bloomberg.

Lenovo's $2.1 billion acquisition of IBM's x86 server lineup put Lenovo in third place in the worldwide x86 server market behind HP and Dell. Speaking with Reuters, Yang said last year that the deal opened a new "growth engine" for his company and that he expected the x86 server business to generate sales of $5 billion in its first year.

Along with Lenovo's $2.9 billion deal to buy Motorola and its smartphone business, he said the moves achieved the goal of expanding the company's grip in three key markets -- PCs, servers and smartphones.