Lenovo Reports 11% Revenue Gain; Could Be No. 1 PC Champ

The owner of the ThinkPad brand acquired from International Business Machines Corp. (NYSE: IBM), Lenovo is also using its prowess to move into the smartphone sector, especially in China.

Neither HP, of Palo Alto, Calif., nor Dell (Nasdaq: DELL), of Round Rock, Tex., now the No. 3 PC maker, offers a smartphone or a tablet, although HP has announced it will ship tablets for the professional market next quarter.

Lenovo reported profit attributable to shareholders gained 20 percent to $303 million from the year-ago quarter, as its operating margin rose to 2.3 percent from 1.9 percent a year ago. Both HP and Dell had reported lower margins for their most recent quarters.

Net income rose 13 percent to $162 million from $144 million a year ago.

“We expect Lenovo to keep outgrowing the PC market,” said Ken Hui, analyst with Jefferies, who was pleased revenue of $8.67 billion exceeded his estimate by 2 percent. The company sold more smartphones than computers in China but still isn't making much money on the latter, he said.

Lenovo CEO Yang Yuanguing promised “overall profitability will continue to improve,” especially as its emerging growth markets outside China continue to improve.

During the quarter, the Chinese company said it intended to establish a new factory in North Carolina, which will employ 115 workers, as well as set up a new joint venture with EMC Corp, (NYSE: EMC), the No. 1 maker of storage products for the server industry.

The company claimed it's now the biggest shipper of laptops, with a 16 percent global share, beating HP and Dell. Sales amounted to 53 percent of overall revenue. The company gained nearly 3 points of share in the quarter while overall laptop sales dipped 7 percent.

Sales of desktop PCs rose rose 5 percent to $2.8 billion, or 32 percent of overall revenue, bringing its global share to 15 percent.

In China, Lenovo smartphones took a 14 percent share, up 12.5 points from a year earlier, the company said.

Meanwhile, the company reported cash and investments around $3.6 billion, which can fuel acquisitions and expansion. Lenovo announced plans to acquire Stoneware, a private cloud computer specialist in Carmel, Ind., for an undisclosed sum. The company has 67 employees.

Lenovo's U.S. shares fell 27 to $16.94 near the Thursday close. They're up 29 percent for the year and 17 percent the past 52 weeks. Shares of HP rose 17 cents to $13.86. They're down 46 percent this year and 50 percent for the past 52 weeks.