Lenovo profit surges on cost cuts, notebook shipments

After three quarters of losses, Lenovo has turned a profit again. The computer maker announced Thursday that its fiscal second-quarter earnings more than doubled to $53 million versus $23 million a year ago.

Profit for the quarter ended September blew way past estimates of only $24 million from analysts surveyed by Bloomberg.

Despite a 5.2 percent sales decline to $4.1 billion from $4.3 billion in the year-ago quarter, Lenovo achieved its profits through extensive cost cuts and a record leap in market share.

(Credit: Lenovo)

The company had previously kick-started a major restructuring program designed to trim expenses and streamline business operations. As a result, Lenovo was forced to lay off a sizable number of employees and take a one-time restructuring charge of $3 million in the second quarter. But the company now expects to save around $300 million annually.

During the quarter, Lenovo says it also saw its worldwide PC shipments surge 17 percent over the prior year, dramatically outpacing the industry average of only 2.3 percent.

"In the last quarter, our share in the global market climbed to a historic high and we returned to profit," said Lenovo CEO Yang Yuanqing in a statement. "At the same time, our expenses-to-revenue ratio improved notably, reaching the best level since the acquisition of IBM's PC division. These achievements bear witness to the clear strategies we set at the beginning of the year and our effective execution of those strategies."

Lenovo's quarterly results were powered by its notebooks, which contributed 63 percent to overall revenue. Though notebook sales dipped 1 percent from the prior year, shipments shot up 37 percent, compared with an industry average of 16 percent.

During the quarter, the company unveiled a few new products, including the IdeaPad U450p, a thin and light consumer laptop, and SimpleTap, an application to help users navigate the touchscreens on Windows 7-enabled machines like the ThinkPad X200 Tablet and ThinkPad T400s.

Desktop sales, however, fell 13 percent from the prior year's quarter, kicking in only 35 percent to Lenovo's overall revenue. Desktop shipments fell 2 percent, but outpaced the industry average of a 12 percent decline. The company said it has reacted to the PC market shift from desktops to laptops by introducing new entry-level low-cost desktops and revamping its product line for small and medium-sized businesses.

Lenovo enjoyed a stellar second quarter in its home base of China where sales jumped 9 percent to $2 billion. Shipments in the country jumped 28 percent compared with the average of only 0.1 percent. Already the leading PC vendor in China, the company boosted its market share there to 29.4 percent.

Earlier this year, Lenovo said that it would refocus its efforts on China and other emerging markets, a strategy that appears to have paid off.

"Our results are moving in the right direction and we are particularly pleased with our performance in China and in the transactional business model," said Lenovo Chairman Liu Chuanzhi in a statement.

The year had been a volatile one for Lenovo. The company was hit a string of quarterly losses, leading to the resignation of President and CEO William Amelio in February. Job cuts and the restructuring also took their toll.

But based on its second quarter, Lenovo is optimistic about the near term.

"In the coming quarters, we will continue to reinforce our leadership in China, improve the sustainability and profitability of mature markets, seize growth opportunities in emerging markets and our transactional business, continue to strengthen cost structure, and innovate with raising efficiency and customers' needs in mind," said Chuanzhi.

[jscott418]

I think once business begins to accept Windows 7, I think the PC market is going to take off. Apple is certainly consistant but lacks much drive when it comes to the business side. In fact Apple is more of a US consumer computer then anything else. I guess they are happy with their niche. But their business model lacks the potential for real substantial growth in the PC market. But sometimes I think Apple is OK with that.

[JessicaInPink]

Sure, the PC market will take off. Windows 7 rocks, HP, Sony, Dell et al have some incredible products! But, Lenovo sure as hell will not survive.

Lenovo makes garbage - and FUGLY- products. Lenovo offers garbage support. Try ordering a Lenovo. You MIGHT get it in 2 or 3 months. Then, you will have to send it in for service, for another month, to replace a bad board! When all is said and done, Lenovo MIGHT double charge your credit card too!

Read their forums. Forums are usually bad - this I know, but what gets posted on Lenovo's forums turns my stomach.

Lenovo is never going to recover and Lenovo will keep cutting back to make themselves "look" like they are recovering.

[Renegade Knight]

@JessicaInPink

HP,& Dell, make garbage. Apple makes unergonomic schlepp. I'd rather run OS X on a Thinkpad than a MacBook.

I'll credit you the horror stories though. When Lenovo screws up they seem to double down on how bad they botch thing. However my old crappy Thinkpads have already outdone my long dead Dell and HP's. I'm thinking the MacBooks will hold up, but that doesnt' stop them from being unergonomic schlepp that makes me cringe to use. Oh and the new cases are Fugly. I'd rather have basic black.

[Renegade Knight]

@JessicaInPink

HP,& Dell, make garbage. Apple makes unergonomic schlepp. I'd rather run OS X on a Thinkpad than a MacBook.

I'll credit you the horror stories though. When Lenovo screws up they seem to double down on how bad they botch thing. However my old crappy Thinkpads have already outdone my long dead Dell and HP's. I'm thinking the MacBooks will hold up, but that doesnt' stop them from being unergonomic schlepp that makes me cringe to use. Oh and the new cases are Fugly. I'd rather have basic black.

@jscott418
Apple has chosen to pander to the high end market. Their laptops have good specs, their quality is fairly good (meanting middle of the road these days) and their support is pretty solid.. You read my gripe about the laptops above. My gripes are somewhat subjective. I don't like the keyboard, and utterly dislike the missing keys. Others enjoy it though. What really annoys me though is I can't plug in two USB devices at once in some cases because the USB ports are too close together. Had apple put one up and one down this probably would not be a problem. But the side by side arrangment causes problems. It lets them keep their case pretty (in some peoples opinion) though.

[softwarepro]

yes jscott418 Apple is US base only

[paulej]

Apple is based in the US, but they sell their products in many countries.

[Vegaman_Dan]

I think Lenovo could benefit greatly by improving their product design. I have to take these systems apart daily and the build quality simply isn't there. Poor designs, bad construction, and very very cheap components. Yes, it helps the bottom line for production costs, but I'm not so sure if that's a good thing when you have to eat up so much of it in warranty claims.

At least it keeps me in business, so I guess I really should be cheering Lenovo's choice to be cheap.

[baconstang]

wasn't the common line that Apple used the same components as everyone else?

[zmjman08]

I'm not sure what machines you have experience with, but my z61m is built like a tank. In 3 years, I've never had any problems with the build quality.

[JessicaInPink]

Wow, I actually agree with Vegaman_Dan's comments.

Way to go Dan!

@zmjman08

Your Z series is out dated. Try getting support - OR ordering a new Thinkpad - and getting support for that. You will quickly learn AND APPRECIATE what Vegaman_Dan has warned you about!!!

Read my comment above too!

Good luck with that "tank"!

[paulej]

I agree... the Lenovo products are not very good. It seems as though product quality really went down once IBM transitioned the ThinkPad line from IBM to Lenovo. I just got a new Lenovo to replace my old ThinkPad and unless they do something to improve quality, I will not be getting another one. There are so many annoying things, both with the hardware and the software. The hardware feels more flimsy, they changed the power connection (rendering my spare power bricks useless), and it's impossible to close the lid and re-open it without something frustrating happening. The best I can do is get the screen to lock (like hitting Windows-L).

[Renegade Knight]

From what I've seen they could stand to upgrade the Thinkpad line to be what it used to be. It's taken a dip in the design department with the more recent generation.