Lenovo Reports Loss Of Dec. Quarter And Defers Target For Turnaround Of Smartphone Business

Lenovo reported a net loss of US$289 million for the quarter ended December 2017. The Chinese etch company is the second-largest personal computer maker in the world.

Severe competition primarily from the other Chinese brands of smartphone makers, the Lenovo Group is struggling to revive its reeling smartphone business even after over four years since the company made the largest acquisition when it acquired Motorola Mobility for a price of US$2.9 billion.

Profitability in its smartphone business – which includes offering of both Moto and Lenovo brands, has been dwindling and therefore many analysts are of the opinion that Lenovo needs to re-evaluate its smartphone business.

The financial report for the fiscal third quarter ending December 31, reported by the company on Thursday, showed that the company has suffered by its mobile business. The company booked a one-time write-off of US$400 million of deferred income tax assets and reported a net loss of US$289 million.

In the same period a year ago, the company had recorded a profit of US$98 million and it had also projected a profit of US$124.5 million.

The non-cash write-down for Lenovo was generated because of the changes in the U.S. tax regulations where the effective rate of U.S. corporate taxes for the company were dropped from 35 per cent to 21 per cent.

But the total revenues of the company topped the estimates of the market and reported a growth of 6 peer cent to touch US$12.9 billion compared to the revenue of US$12.2 billion a year earlier. The market had forecast revenues of US$12.5 billion.

Lenovo chairman and chief executive Yang Yuanqing, conceded that the company would not be able to meet the deadline of the March quarter of 2018 for the turn around of its mobile phone business.

There has been a fall of 5 per cent in the revenues of Lenovo’s mobile business touching US$2.1 billion in the quarter to December. The business accounted for about 16 per cent of the total revenues of the company in the quarter.

Markets had expected that seasonal demand and push by the company to move to high-end smartphone models from mid-priced ones would result in a growth in the mobile business of the company, said Daiwa Capital Markets analyst Steven Tseng in a recent report.

Despite the fact that the mobile phone business of Lenovo had not performed according to expectations last quarter, there are no plans of the company to for a write-off of the mobile business, said Wong Wai-ming, the chief financial officer at Lenovo, on a media conference call on Thursday.

The company had written off US$327 million in inventories in its smartphone business in 2015 as a part of its restructuring plan for revival of the mobile phone unit. It also included retrenchment of over 1000 employees.

Lenovo “remains committed to make this business profitable”, said Yang.

(Adapted from SCMP.com)

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