Lenovo rises as mobile, data server player to sidestep PC slump

Reuters

* Q2 net profit $219.7 mln vs $162 mln a year earlier

* Actively seeking acquisitions to boost growth

* Targeting corporate data servers to counter PC decline

By Paul Carsten

BEIJING, Nov 7 (Reuters) - China's Lenovo Group Ltd, the world's biggest personal computer maker, isreinventing itself as a growing force in mobile devices and datastorage servers to beat the slump in the PC market that iscrippling less agile rivals.

Lenovo said on Thursday net profit beat estimates, jumpingover a third in July-September to a quarterly record of $219.7million.

Now the world's fourth-biggest smartphone maker, the companyalso said it's looking for new businesses to buy as it remouldsitself. It has $2.87 billion in cash and equivalents on itsbalance sheet three decades after it was founded in Beijing witha staff of 11.

The progress at Lenovo, with a 17.7 percent share ofworldwide PC shipments according to research firm IDC, is insharp contrast with that of other PC makers like AcerIncorporated. Acer's chief executive stepped down thisweek after poor results at the Taiwanese firm in a quarter whenthe PC industry contracted 7.6 percent globally, according toIDC.

Lenovo's continuing cruise into smartphones, tablets andnetwork storage systems extended its streak of double-digitquarterly growth to over three years. Desktop PCs were its onlybusiness line not to grow as July-September net profit surgedcompared with $162 million a year ago and a $199.12 millionconsensus forecast on Thomson Reuters Starmine SmartEstimate.

Some of its future acquisition targets will be in thegrowing market for cloud computing and back-end informationstorage that's lured companies from rival IBM toInternet retailer Amazon.com Inc, Lenovo said.

"We don't have an exact plan, but I hope in five years ournew businesses, including mobile, with tablet, and enterprise,will account for 50 percent" of sales, Chief Executive YangYuanqing said in a telephone interview with Reuters.

Aside from grabbing headlines by hiring Hollywood starAshton Kutcher as a part-time product engineer on its Yogatablet computers, Lenovo stands out from peers for its abilityto embrace change.

It began making smartphones in 2010. The 4.7 percent shareof the global smartphone market it claimed in the quarter endedSeptember, according to IDC data, means only Apple Inc,Samsung Electronics and Huawei Technologies are bigger.

"We definitely have a plan to grow organically but at thesame time we have our eyes open for all opportunities availablein the market, and have ourselves well prepared," Wong Wai Ming,Lenovo's chief financial officer, said in a post-earnings call.

"It's not just servers, I think for any business, we havethe capability to look at opportunities and will definitely doso as and when it adds value to us," Wong said.

SERVER AMBITIONS

Lenovo also wants to repeat its penetration of thesmartphone business in cloud computing, which Amazon WebServices pioneered in 2006.

The technology lets companies rent computing power, storageand other services from data centres shared with other customers- typically cheaper and more flexible than maintaining theirown.

The ambitious company was among a range of suitors toapproach BlackBerry Ltd before the troubled device makertook itself off the market, according to sources familiar withthe matter. BlackBerry, with its pedigree in data and thesmartphone business, was a potential match for Lenovo'sexpansion needs.

Any potential deals, unlike the reported interest inBlackBerry, are likely to match Lenovo's previous pattern oflow-key deal-making. This year's acquisition of Brazil's CCE andIndianapolis-based Stoneware in 2012 provide examples, saidAlberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein.

"They're under the radar, doing deals that suit theirstrategy, paying as little as possible, applying their productportfolio and capabilities and monetising that," said Moel,speaking before Thursday's earnings were released.

"These are small deals, that they can pay for in cash, tomeet the needs of a particular geographic coverage or particularproduct. On the server side they'll be looking for corporateserver capabilities - there are some smaller companies in theserver business that could be a good fit."

The company, based in both Beijing and Morrisville, NorthCarolina, already works with EMC Corp, the world'slargest data storage equipment maker, in developing servers andstorage products.

But for Lenovo this isn't enough. The firm is now activelyseeking a way to build its small server business as it spinsaway from a PC market that IDC predicts will continue to shrink,declining 2 percent next year.

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