Lenovo to End Motorola Losses with China Phone Plan

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Lenovo Group Ltd, which reported a 29% increase in profit yesterday, has stated that it expects to end the losses of Motorola Mobility, which it is acquiring, within quarters of completing a deal and it will achieve this goal by reintroducing the smartphone brand to China. Yang Yuanqing, the Chief Executive Officer of the company said that they would be able to turn around the business in a few quarters. The company, based in Beijing, has spoken to the US regulators and is making an effort to get approval for purchasing Motorola Mobility from Google Inc. for a total price of $2.91 million in stock and cash.

Last month, Yang had led about $5 billion deals in order to help Lenovo in withstanding the shrinking demand for personal computers, a market that contributes about 80% sales of the company. Apart from the acquisition of Motorola for boosting smartphones, the company also made an agreement to purchase the low-end server unit of International Business Machines (IBM) Corp for $2.3 billion in order to add corporate customers. New challenges and risks have been added to Lenovo with the acquisition of Motorola as the mobile business had operating losses of about $1 billion last year according to Yang because the company is seeking to integrate the deals and thus, revive its sales.

According to analysts, the company is basically indulging in a material head on to profitability, which will have an effect on their results. Their opinion is that earnings will be declining in the next few quarters, but the question is how much those earnings will drop and how long it will take before they eventually rise again. Lenovo made a statement in which it stated that in the three months ended December; there had been an increase in net income of about $265.3 million as compared to $204.9 million last year and it is higher than the estimate of analysts, which were about $243.7 million.

Similarly, there had been a rise in sales of about 15% to reach a total of $10.8 billion in contrast with the $9.36 billion and this was again higher than the estimate of $10.5 billion made by analysts. However, the share price of the company has been reduced by 8.5% in this year. Nevertheless, according to the data that was accumulated by research firm Gartner, Lenovo had retained the number 1 spot in the global PC market with 18.1% in the fourth quarter of last year with the boost in shipments by 6.6% while Hewlett-Packard Co had maintained the second spot.

However, overall, the worldwide shipments had dropped drastically last year to levels that haven’t been seen since 2009, due to which it was termed as the worst decline in PC history, according to Gartner. Therefore, Yang has diversified the company by making a move towards the smartphone market. The company built its sales with inexpensive devices, but is now gradually making a move towards the premium market with models like the Vibe X smartphone that was launched in China in October.