Lenovo posts surprise loss as mobile unit struggles continue

Lenovo Group posted a surprise loss after taking a $400 million charge due to US tax reforms as its mobile business continues to struggle with shrinking revenue.

The world’s second-largest PC maker reported a $289 million net loss in the three months ended December. That compares with the projection of a $124.5 million profit, according to the average of analysts’ estimates compiled by Bloomberg.

Lenovo’s struggles in smartphones, where its getting squeezed by rivals and higher component prices, are overshadowing improvements in its data center and PC divisions. Chief executive officer Yang Yuanqing doesn’t expect the business to break even in the second half with more time needed to turn around a unit that has yet to make money from its 2014 purchase of Motorola Mobility for $2.9 billion.

“They just need to figure out their messaging. I don’t know what Lenovo stands for from a phone perspective,” said Anand Srinivasan, an analyst at Bloomberg Intelligence. “I would characterize mobile as mixed.”

Total operating income was $204 million, compared with the $201 million projected, while revenue increased 6% to $12.94 billion.

Shares of Lenovo fell 0.4% to HK$4.49 as of 9:41 a.m. in Hong Kong. The stock has gained 2% in 2018 after three straight annual declines.

Sales from the mobile business fell 5% in the quarter and the division had a pretax loss of $92 million after excluding accounting charges.

“Turning around the business is still our goal, but we probably need more quarters to deliver that result,” Yang said in an interview. “We are working on that, we believe sooner or later it will make profit. Profitability will be a key priority for this business.”

PC unit sales rose 8% with a pretax profit of $416 million. Worldwide PC shipments rose during the December quarter for the first time in six years – albeit less than 1 percent. But HP Inc widened its lead over its closest rival, according to research outfit IDC.

Lenovo swallowed a one-time charge of roughly $400 million as a result of the Trump administration’s tax overhaul, though it said the reforms may result in a lower tax rate for its US operations in the longer term.

Read: Lenovo’s revenue beats estimates as global PC market stabilizes