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Lenovo profit gains mere 1% on acquisition costs

HONG KONG -- China's Lenovo Group, the world's largest PC maker, posted Thursday a net profit of $829 million for the year ended March 31, up 1%. Large-scale acquisitions weighed on the company's earnings.

     Last fiscal year, Lenovo acquired U.S.-based cellphone maker Motorola Mobility for $2.9 billion and IBM's low-cost server business System x for $2.1 billion. It started booking non-cash acquisition-related charges, such as goodwill amortization costs, from the period. In addition, its operating expenses increased 39% to $5.6 billion.

     Yang Yuanqing, Lenovo's chairman and chief executive officer, stressed that the company will make the money-losing Motorola business profitable within the next four to six quarters. "We are still in the transitional period, and we need time to stabilize our business," Yang said at a news conference.

     The company reported revenue of $46.3 billion, up 20%. Though the worldwide PC market has shrunk, Lenovo's PC shipments increased 8.4% to 60 million units. Its market share rose 2 points to 19.7%, remaining the world's highest.

     However, smartphone sales in China faced challenges due to fiercer competition. Lenovo plans to strengthen online sales to diversify its sales channels. "We no longer chase volume [of products], we chase profitable business," Yang said.

     The acquisitions helped Lenovo's efforts to balance its portfolio, with PC sales decreasing to 64% of overall sales from 82%. Its mobile and enterprise businesses accounted for 25% and 9%, respectively. "Balanced growth makes the company more diverse," Yang said.

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