Lenovo Q3 Profit Jumps 30 Percent, But Warns Acquisitions Could Hurt Future Earnings


 

Lenovo chalked up yet another quarter of impressive sales and earnings growth. The question now is, can the company juggle two multibillion dollar acquisitions at the same time and still stay on track?

Lenovo made two blockbuster deals in the span of about a week. First the computer maker agreed to buy IBM's x86 server business for $2.3 billion. Then Lenovo spent another $2.91 billion to buy Motorola Mobility from Google. Both moves strengthen two of Lenovo's key growth areas -- servers and smartphones -- but both businesses carry serious baggage.

IBM's x86 server business, for example, has seen double-digit sales declines recently, and Motorola's smartphone business was bleeding money for Google. Despite those issues, CEO and Chairman Yang Yuanqing said during the earnings call that both businesses would be key drivers for the company's growth plan.

[Related: Lenovo: We Aren't Sweating Microsoft Surface]

"The Motorola and IBM server acquisitions that we just announced are a perfect fit with our PC Plus strategy," Yang said. "While our top priority now is full participation in the regulatory approvals process, I am confident that from day one after closing, these businesses will quickly begin contributing to our performance and develop into pillars for long-term, sustainable growth."

But Yang told The Wall Street Journal the Motorola deal specifically "could have a certain negative impact [on earnings] in the short term." He also told Bloomberg News that Lenovo can turn around Motorola Mobility "in a few quarters."

For now, Lenovo is still raking in the profits. The company's third quarter was highlighted by a 30 percent year-over-year increase in net income to $265 million. Lenovo also posted revenue of $10.8 billion, a 15 percent year-over-year increase that helped the company pass the $10 billion quarterly sales mark for the first time.

The company shipped 15.3 million PCs for the quarter, with Lenovo's laptop business accounting for $5.4 billion, an 11 percent increase from the same quarter one year ago. Lenovo's desktop business also grew 9.1 percent year-over-year.

Finally, Lenovo's Mobile Internet and Digital Home (MIDH) products, which include the company's smartphone and tablet devices, saw revenue jump 73 percent from the same quarter one year ago, with $1.7 billion in sales. In total, Lenovo said it shipped 17.3 million smartphones and tablets in the quarter.

PUBLISHED FEB. 13, 2014