Motor move will pull down Lenovo's near-term profit

February 13, according to MarketWatch website reported, Lenovo Group president and CEO Yang said that Lenovo can be in the next two quarters to reverse the current Motorola losses. Now market investors are questioning Lenovo's takeover of Motorola from Google, a gesture that is no doubt aimed at easing concerns among market investors about the deal.

"I'm sure we can make Motorola profitable in the future," Yang told the Wall Street Journal in a Thursday interview. We have identified areas where costs need to be cut. ”

Yang said that when Lenovo integrated Motorola into its own mobile phone business, it would have economies of scale, which would help companies slash marginal procurement costs and other costs.

Before he made the announcement, Lenovo's earnings figures showed the company's net profit rose 30% per cent in the third quarter. Despite strong earnings, analysts and investors are particularly concerned about Lenovo's future development plans for Motorola. In January this year, Lenovo said it planned to buy Motorola at a price of $2.91 billion, which was only one weeks away from its release of $2.3 billion to buy IBM's low-end server business. Analysts have said the acquisition of Motorola will hurt Lenovo's earnings in the next few years. In 2013, Motorola lost 928 million dollars. Lenovo's share price has fallen by 21% per cent since the end of its bid to buy Motorola in late January, and its market capitalisation has evaporated more than $3 billion trillion.

Yang admitted that the takeover of Motorola could have a negative impact on Lenovo's profitability in the short term, but said mergers are good for shareholders in the long run.

Yang also said he did not agree with analysts ' view that Lenovo's management was too radical, and those analysts thought it was too radical for Lenovo to launch the two big deals at the same time.

"We have plenty of resources to deal with these two mergers and acquisitions," said Yang. ”

Last month, Lenovo announced plans to restructure two of its existing business units into four big groups. Yang said the new corporate structure would help Lenovo integrate Motorola and IBM's server operations more effectively.

Wong Wong Wai, chief financial officer at Lenovo Group, said in a separate conference call that Lenovo had ample cash to fund its expansion after the two deals were completed. Wong says Lenovo's available cash is $4.7 billion trillion, including 1.7 billion of dollars in loans it has received. After paying 2.7 billion of billions of dollars for the two deals, Lenovo has $2 billion trillion in cash.

In 2013, Lenovo successfully overtook HP to become the world's largest PC producer. The company is looking to rely on the two deals to provide more resources for its performance growth, mainly because the traditional PC industry has slowed growth.

Even in the past few years, the PC industry has struggled to cope with weak market demand, but Lenovo has also shown its strength in boosting profitability. The company said in Thursday that its net profit level rose from $204.9 million a year earlier to $265.3 million in the quarter ending December 31, 2013. This is mainly due to the strong sales of personal computers and mobile devices in the Chinese market. Revenues rose to $10.79 billion from $9.36 billion a year earlier, up 15% per cent year-on-year. Still, Lenovo's earnings growth in the quarter was not as strong as its second quarter. The company's earnings rose by 36% per cent year-on-year.

The Chinese market, which accounts for nearly 40% of Lenovo's revenues, has become Lenovo's number one source of profit. Lenovo's strong profitability in China's home market has helped the company expand its overseas markets. In the third quarter, Lenovo's operating profit margin in China grew to 5.4% from 4.6% a year earlier.

In 2005, Lenovo acquired the IBM PC business as a springboard for its business expansion in the global marketplace over the past decade. Today, Lenovo says it is building on its core PC business to build two major profit growth points: smartphones and tablets.

Lenovo became the world's fifth-largest smartphone maker in 2013, with a market share of 4.5%, according to IDC, a market-research firm. Yang said Motorola's brand recognition and its good relationship with operators would help Lenovo.

In the fourth quarter of 2013, Lenovo's smartphone sales grew 47% to 13.9 million, of which 2 million were sold to overseas markets. Sales of tablet computers have increased by more than three times to 3.4 million units. Despite strong sales growth, the handset business has not contributed too much to its overall profitability, largely because Lenovo has made significant spending on expanding its marketing channels in overseas markets.