Lenovo Group (992) Q2 2015 earnings summary

Executive summary

• Q2 revenue rose 7% YoY to $10.5bn; profit attributable to equity holders increased 19% to $262m. IBM System x and Motorola acquisitions closed in October.

• PC share gained more than 2 points to nearly 20% globally; tablets gained nearly 1 point and ranked No. 3 worldwide.

• Smartphone units reached a record despite China challenges, with rapid growth outside China; enterprise volume increased 35% YoY.

Financial highlights

• Gross profit was ~$1.5bn, up 15% YoY; gross margin expanded to 13.9% from 12.9%.

• Operating expenses rose 11% to ~$1.1bn, including one-off System x and Motorola M&A costs; operating profit increased 29% to $365m.

• Profit for the period rose 27% to $272m; profit attributable to equity holders increased 19% to $262m.

• Basic EPS improved to $0.0252 from $0.0212.

Outlook and guidance

• System x target remains a $5bn enterprise business with margins above PCs within one year, supported by growth and lower material, supply-chain, and operating costs.

• Motorola breakeven target remains four to six quarters, driven by revenue growth, expense control, and Lenovo operating and sourcing synergies.

• Existing businesses expected to outperform markets and expand margins; near-term priority is integrating both acquisitions, whose results enter Q3.

• Smartphone sales outside China are expected to scale and improve financial contribution; management expects continued strong growth, though not necessarily near-100% YoY indefinitely.