China's Lenovo Group said first-quarter profit jumped 23 percent, beating estimates, as a surge in smartphone sales showed how quickly the world's biggest personal computer maker is transforming itself into a major player in mobile technology.
Beijing-based Lenovo said on Thursday net income climbed to $214 million in the three months through June from $174 million in the same period a year earlier, the opening quarter of its fiscal year. That was ahead of estimates of $202 million, according to a Thomson Reuters SmartEstimate poll of analysts.
This year the ambitious hardware company has accelerated its strategy to diversify away from the crumbling PC market, agreeing to buy IBM's server unit and the iconic Motorola handset brand in deals worth over $5 billion. Lenovo's Chief Executive Yang Yuanqing said he sees potential for more smartphone sales growth outside China - though he won't chase it at the expense of profit margins.
Lenovo reported 39 percent growth in worldwide handset shipments, helped by strong sales in China. The company has displaced South Korean giant Samsung Electronics Co Ltd over the past year to become the No. 1 smartphone seller in China, according to recent estimates by IDC.
But it has been closely trailed in its home country by rival handset makers like Xiaomi, the three-year old Beijing-based upstart that has been gobbling up smartphone market share at the cost of razor-thin margins.
On Thursday CEO Yang said Lenovo will prioritize profitable markets overseas rather than jostle with unidentified "unhealthy" rivals in China.
"There are local players who only chase growth so they can attract investors in the capital markets, which is not a healthy model," Yang said in a telephone interview. "We don't do business that way. We will balance growth and profitability."
"China is still one of the most important markets for Lenovo, but actually we have more potential opportunity outside of China," Yang said. He cited recent sales growth rates of 300 percent and 500 percent in Southeast Asia and Eastern Europe, respectively.
Overall revenue for the quarter rose 18 percent to $10.4 billion, with significant gains coming in Europe.
Lenovo's core PC business, which still accounts for roughly 82 percent of sales, continued to tighten its grip on the market despite what many view as a long-term decline in the broader industry. Lenovo's laptop sales rose 12 percent over the year while global laptop shipments fell 3.7 percent, the company said.
Yang said on Thursday both