Lenovo Computes Back to Profits, Takes Over Fujitsu’s PC Business

Struggling PC giant Lenovo Group Ltd.’s situation stabilized in its latest reporting quarter with a return to profit and revenue growth, as it also announced a joint venture that would see it take over the PC business of Japan’s Fujitsu through a joint venture.

Lenovo reported a profit of $153 million for the three months through September, its second fiscal quarter. That was up a slight 1% from a year earlier, and took the company back into the black after reporting a loss in the previous quarter. Revenue for the quarter rose 5% to $11.8 billion, also returning to a growth track after a flat performance in the previous quarter.

Lenovo has struggled in the last two years as its older PC business stagnates in sync with a global market where consumers are increasingly substituting smartphones, tablets and other more portable devices for bulkier computers. At the same time, the company’s smartphone business that was once considered its future growth engine has struggled to find an audience.

Lenovo said its PC shipments grew 17% in its latest reporting quarter from the previous three months, allowing it to gain 0.1 percentage points in global share at 21.6%, according to preliminary results. The company’s smartphone business also posted 6% year-on-year growth in terms of units shipped in the six months through September, accelerating a nascent rebound that began earlier this year.

“The group’s transformation started to show positive results during the interim period, and it now has a clear vision under the three-wave strategy to drive sustainable profitable growth going forward,” the company said. “Although the markets the group participates in are fiercely competitive, management is confident in its execution to weather through the competition, leveraging its excellence in branding, operation efficiency and supply chain management.”

Lenovo obtained its current size partly through a steady string of global acquisitions over the years, starting with its landmark purchase of IBM’s PC assets in 2005 and most recently with its purchase of faded cellphone-maker Motorola Mobility. The company was back on that acquisition path on Thursday, with its separate announcement of the formation of a joint venture that will see it take control of the PC business owned by Fujitsu.

Lenovo first disclosed it was in talks for such a venture a year ago. The newly announced deal will see Lenovo buy 51% of Fujitsu’s PC-making unit, with Fujitsu retaining the remaining 49%. Lenovo will pay up to 30.6 billion yen ($268 million) for the stake, consisting of 17.85 billion yen up front and between 2.55 billion yen and 12.75 billion yen based on the unit’s performance over the next two years. Fujitsu also has an option to require Lenovo to buy out the venture at a later date.

Lenovo conducted a similar deal with Japan’s NEC Corp. in 2011, taking over the latter’s PC assets through initially forming a joint venture that it later bought out. The Lenovo and NEC brands combined were the leading player in Japan’s PC market in this year’s second quarter with 23% share, according to IDC. Fujitsu is the market’s second largest brand with 15% share, meaning the latest combination would make Lenovo the indisputable leader with 38% of the market.

The Fujitsu PC unit posted a pro forma operating profit of about 9.2 billion yen for the 12 months through March this year, up more than five-fold from the previous year.

“The transaction will give (Lenovo) a majority stake in a joint venture that will bring efficiencies and economies of scale to benefit the development, manufacture and distribution of Fujitsu-branded personal computer products, while enabling improved global penetration of the Fujitsu personal computer brand for the benefit of both consumer and enterprise market customers,” Lenovo said in a statement announcing the deal.

Lenovo’s shares rose 2.2% in Thursday trade after the results were announced. They have bounced back about 12% from seven-year lows hit in mid-September, as investors worried about the company’s future.

Contact reporter Yang Ge (geyang@caixin.com)