Lenovo Group (992) Q4 2011 earnings summary

Executive summary

• FY11 revenue reached $21.6B, market share hit a record 10.2%, and pre-tax income rose 103% to $358M.

• Fastest-growing major PC maker for six consecutive quarters; growth came from a protect-and-attack strategy across China, mature markets, and emerging markets.

Financial highlights

• FY11 revenue rose 30% to $21.6B; gross profit increased 32% to ~$2.4B, with gross margin at 10.9% vs. 10.8% in FY10.

• FY11 pre-tax income was $358M, up 103%; profit attributable to equity holders rose 111% to $273M.

• Q4 revenue grew 13% YoY to ~$4.9B; PC sales rose 11% to $4.7B and mobile revenue increased 43% to ~$187M.

• Q4 gross profit rose 34% YoY to ~$600M; gross margin expanded to 12.3%. Operating profit increased 46% to $69M, and attributable profit was $42M.

Outlook and guidance

• PC and mobile internet markets expected to remain growth drivers; China PC demand was regaining momentum and the corporate refresh cycle was expected to continue.

• E/R ratio expected to improve over the next few quarters as higher volume delivers better scaling, while investment in innovation, branding, and mobile internet continues.

• China targets included at least double-digit PC market growth, doubling smartphone sales, and reaching 20% tablet share.

• NEC joint venture operations were expected to begin July 1; initial costs were expected to be in line with the existing cost structure, with value gains over time.