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Nikkei Markets

Lenovo beats profit estimates, warns of parts shortage

Company keeps leading position in PCs as sales rise 7.1% by volume

The U.S.-China trade war and the specter of higher tariffs have pushed PC makers to increase shipments of desktops and laptops.

HONG KONG (Nikkei Markets) -- Lenovo Group, the world's largest personal-computer maker, reported quarterly profit that exceeded expectations as demand for its products held despite the downturn in the global economy. However, the Chinese company warned that a shortage of components that has hobbled its growth could persist into the first half of next year.

An extended shortage of Intel processor chips has hit PC sales across the globe over the past few quarters.

The U.S.-China trade war and the specter of higher tariffs have pushed PC makers to increase shipments of desktops and laptops, fueling the shortage of components, research firm IDC said.

"Looking forward, the complexity of the macro environment and supply constraints remain our primary challenges," Lenovo's chief financial officer Wong Wai Ming told reporters in a conference call. "We are working to resolve the supply challenges and aim to minimize the revenue impact," in the current quarter, he said.

Lenovo, which makes nearly one in every four PCs shipped globally, has been dealing with this supply shortage for almost a year. Without it, the company could have shipped 700,000-800,000 more PCs in the last quarter, said Gianfranco Lanci, the chief operating officer.

While the situation could ease in the first half of next year, Lanci said he doesn't expect the improvement to be big.

The Hong Kong-headquartered company, known for its ThinkPad devices, has so far dodged some of the impact of the trade war with the help of its manufacturing centers in Mexico and India and other operational and research centers around the globe.

U.S. President Donald Trump's decision to delay new tariffs on certain consumer items from China, including cellphones and laptops, has also worked in its favor.

The market share of Lenovo's PC and smart devices business, which accounted for more than three-fourth of revenue, grew 0.8 percentage point to 24.4% in the latest quarter. The company said a shift in the product mix towards high-growth and premium segments, coupled with Microsoft's Windows software refresh cycle, powered the gains.

The segment's revenue increased 4.1% from a year ago to $10.7 billion. PC sales by volume grew 7.1% in the quarter.

Lenovo said it remains focused on expanding the high-growth and premium segment.

Overall, net profit for the quarter ended September rose 20% to $202 million, beating analysts' estimate of $199.59 million in a Refinitiv poll. Revenue edged up 1% to $13.52 billion.

Global PC shipments grew 1.1% in the July-September period, according to research firm Gartner. Lenovo maintained its leadership with a 25% share as it widened the gap with smaller rivals HP and Dell, Gartner said.

Revenue from Lenovo's mobile business declined 5.7% in the quarter. But its pretax profit of $57 million was the highest since the acquisition of Motorola from Google in 2014. Strong demand from the U.S. and Latin American countries drove the segment's profitability over the past year.

Lenovo had earlier said it plans to launch up to six new mobile phone models in the current quarter. The company said it will continue to invest in the mobile business to drive growth in select markets.

--Benny Kung & Dhanya Ann Thoppil

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