China's Lenovo Group Limited (HKG:0992) said that it expects to end Motorola Mobility’s losing streak within a few quarters of acquiring the smartphone brand.
“In a few quarters we can turn around the business,” CEO Yang Yuanqing told Bloomberg on Thursday. The Beijing-based company has spoken to U.S. regulators and is working to get approval to buy Motorola from Google Inc. (NASDAQ:GOOG) for $2.91 billion in cash and stock, with the aim of boosting its smartphone portfolio. The deal was first announced on Jan. 29.
In addition to Motorola, Lenovo has also agreed to buy International Business Machines Corp.'s (NYSE:IBM) low-end server unit for $2.3 billion to add corporate customers. The acquisition comes as demand for personal computers, a market that accounts for 80 percent of Lenovo’s sales, is on a downward slope.
Worldwide shipments last year dropped to levels unseen since 2009, making it the “worst decline in PC market history,” according to research firm Gartner Inc. Lenovo has managed to hold onto its biggest global share of 18.1 percent, ahead of Hewlett-Packard Co.
Motorola reported operating losses of more than $1 billion last year, which could add new risks and challenges for Lenovo, according to a Bloomberg report.
Lenovo posted a 29 percent increase in profit on Thursday, with net income climbing to $265.3 million, beating street consensus, but this may be the last quarter the company shows such stellar numbers.
“They basically are taking on a material headwind to profitability which will impact their results,” Alberto Moel, an analyst at Sanford C. Bernstein & Co. in Hong Kong, said. “For the next few quarters we will be seeing earnings coming down. The question is how bad those earnings will drop and how low they will go before they start rising again.”
Even so, Lenovo seems to be doing all right. Smartphone shipments rose 47 percent in the fourth quarter, to a record 13.9 million units, while shipments in the wider smartphone market in China actually dropped four percent.
“We will relaunch and reintroduce the Motorola brand back to China and other emerging markets,” Yang told Bloomberg. “We will compete in the premium market, but this is not enough, we will also compete in the entry level.”