Declining demand due to exchange rate fluctuations in the Middle East, Africa, and Brazil markets.


Lenovo announced its second-quarter results, reporting 23% growth in revenue, excluding foreign exchange fluctuations, to US$12.2 billion. However, under Hong Kong Financial Reporting Standards (HKFRS), the company reported a pre-tax loss of US$842 million and a net loss of US$714 million. The HKFRS loss stemmed from a restructuring effort undertaken in the first quarter, including cost reductions across all business units, the System X business merger, the rebranding of Motorola and Lenovo's mobile business groups, and the disposal of smartphone inventory.

Lenovo's position is that the reorganization has saved the company about $600 million in the second half and about $1.3 billion for the full year, and it appears that the company plans to remain competitive while investing in new areas, as its cost structure for its core business is the most competitive in the industry.

Lenovo Chairman Yang Yuanqing stated, "Lenovo faced challenges and achieved growth compared to the previous quarter through strong execution. We are not only pursuing a competitive business model, but also achieving growth. Our PC business achieved unrivaled market share and strong profitability. Our mobile business successfully increased profitability by focusing on regions outside of China."

However, contrary to the chairman's words, the PC division, which includes PCs and Windows tablets, recorded sales of US$8.1 billion and pretax profit of US$406 million, down 17% year-on-year. This is because demand has decreased due to exchange rate fluctuations in the Middle East, Africa and Brazil markets.

Motorola's Q1-Q2 earnings expectations

Lenovo's mobile business, which includes Motorola and Lenovo mobile phones, Android tablets, and smart TVs, reported revenue of US$2.7 billion, up 104% year-over-year, with Motorola revenue included. Motorola generated US$1.4 billion in revenue from Lenovo's mobile business.

Lenovo cleared existing inventory and streamlined its product portfolio in the second quarter, launching key products such as the DROID Turbo 2 shatterproof smartphone, the Moto 360, and the Vibe P1. By restructuring its mobile product release cycle, the company expects to remain competitive across seasons and quarters. Lenovo expects to achieve profitability for Motorola within one to two quarters once the restructuring is complete.