Lenovo announced on Feb. 3 that it earned a surprising profit growth due to cost cuts and sales from enterprise products. (Photo : REUTERS)
World’s largest personal-computer maker Lenovo Group Ltd. has reportedly posted net profit increase from cost cuts and growth in sales of enterprise products, despite sales decline in its PC and smartphone businesses for the third quarter, the Wall Street Journal reported.
According to the report, electronic makers like Lenovo have offset the slowdown in PC sales in the past years by increasing production of smartphones, a strategy that caused diminishing returns.
The report cited data from market research firm Canalys which showed that the growth in worldwide smartphone shipment dropped from 80 percent in 2010 to 11 percent in 2015 and is expected to slow further. In addition, global PC sales have slumped for several years and vendors are expecting to hit bottom in 2016.
The slowdown in PCs and smartphones can be replaced by new technologies such as smartwatches and virtual-reality headsets, which consumers have yet to embrace, the report said.
"The golden years have passed," Zhou Hao, an economist at Commerzbank AG, said. "We maybe have to wait for the next generation of products that can trigger new consumption."
Even strong players felt the effects as Apple Inc. projected last month that its revenue will drop this quarter, the first time in 13 years. Samsung Electronics Co. also experienced a sharp slowdown in profits from chips last week, warning of intense smartphone competition.
The report said that smaller vendors also suffered as Taiwanese smartphone maker HTC Corp. reported on Wednesday, Feb. 3, that it suffered a net loss of 3.4 billion New Taiwan dollars ($101.4 million) in the fourth quarter.
During the interview on Wednesday, Lenovo Chairman Yang Yuanqing said that his company faced a "really challenging market," but aimed to gain profit growth this year by taking over market share from PC rivals and redoubling efforts in emerging markets.
"We think we can win through our efficiency," Yang said. "How we can make money in this downturn period? Because we have the most competitive cost structure."
The report said that although its sales fell, Lenovo's surprise net profit gain for the last quarter of 2015 was due to cost cuts. The company said its net profit for the quarter rose 18.6 percent from a year earlier to $300 million, beating the $226.3 million average estimate of 19 analysts surveyed by Thomson One Analytics. Revenue fell 8.5 percent to $12.9 billion from $14.1 billion a year earlier.
The company said its revenue decline in the quarter would have only been 2 percent, not 8 percent, if not for the currency depreciation.
According to Chief Financial Officer Wong Wai Ming, Lenovo would consider raising product prices in emerging markets if depreciation continued.
