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Lenovo Q2 2015 Review: Near-Term Hiccup Presents An Attractive Buying Opportunity
- Lenovo reported 2Q15 with revenue below expectations.
- PC shipment continue to hold while smartphone sale down on accounting changes.
- Long-term outlook remain attractive. Continue to be my favorite large cap tech name.
Lenovo - Strong Execution Of PC Plus Strategy Allows For A ~65% Upside
- Recent acquisitions of Motorola Mobility and the x86 IBM servers brings new revenue opportunities and higher margins, not yet reflected in the stock price.
- The tablet market is under pressure and there is convergence towards phablets and high-end convertible tablets, both segments in which Lenovo is a strong player.
- Continued dominance in the Chinese Smartphone market through its new online distribution model.
Previewing Lenovo's Upcoming Quarter: Buy Ahead Of Results
- Lenovo will report Q2 earnings on Nov. 6.
- We could see near-term volatility from the Shanghai-Hong Kong Connect and potential amortization of intangibles.
- The company's long-term growth is intact. I continue to like Lenovo for its PC consolidation and smartphone business.
- Lenovo posted solid beats at the revenue and operating profit lines, as the global leader continues to gain share in PCs and is becoming a bigger factor in smartphones.
- Regulators have given the IBM server deal a little more scrutiny, but both the IBM server and Google Motorola businesses appear to be stabilizing ahead of Lenovo's takeover.
- Lenovo isn't a compelling bargain at a fair value of $30, but a history of both outperforming expectations and share price pullbacks merit a spot on watch lists.
Lenovo Dismisses U.S. Security Concerns On IBM Buy
- News has emerged that the latest deal between IBM and Lenovo is in limbo following the U.S. government's security concerns over IBM's x86 servers.
- The servers are extensively used in the country's communications networks and in data centers that support the Pentagon's computer networks.
- IBM and Lenovo faced a similar situation in 2005 when Lenovo bought IBM's personal computer business.
Lenovo Making The Right Strategic Moves To Build Value
- Lenovo beat expectations for quarterly revenue, gross margin, and operating profit on strong shipment growth in PCs, tablets, and handsets.
- Closing the IBM server and Google Motorola deals is important, but integrating, turning around, and improving the businesses is critical.
- Lenovo looks undervalued below $28, but it will take a few years for margins to recover as Lenovo absorbs the server and Motorola operations.
Is Samsung Vulnerable To An Assault By Lenovo? A Rift With Google Could Expose A Flank
- On the strength of Google's open source Android OS and deep integration into components, Samsung has emerged as the leader worldwide in smart connected devices.
- But there is some evidence Samsung is not happy with Google or Android and seeks alternatives.
- A Samsung-Google rift might open the door for Lenovo to accelerate its already rapid growth in mobile.
After 25% Pullback, Lenovo Looks Extremely Interesting
- After peaking in January, Lenovo's shares have pulled back nearly 25%.
- While indigestion concerns loom after the acquisition of Motorola Mobility and IBM's X86 server group, the growth opportunity is enormous.
- Shares trading at just an $11 billion market capitalization grossly undervalues the company's long-term earnings power.
There are no Transcripts on LNVGY.
Wed, May. 21, 2:59 AM
- Lenovo's (LNVGF) FY net profit leapt 29% to $817M and met forecasts, while revenue climbed 14% to $38.71B.
- Personal computer shipments grew 5% to 55M units despite the broader market contracting.
- Lenovo's smartphone shipments surged 72% to over 50M units, "driven by the strong growth in China and emerging markets."
- Revenue at Lenovo's mobile Internet and digital-home business - which develops the company's smartphones - soared 86.1% to $5.7B.
- However, Lenovo's Chinese sales rose just 1.3% to $14.7B and accounted for 38% of the company's overall revenues. Operating profit was $788M out of a total of $1.05B. Lenovo's operating margin in the country increased 0.9 of a percentage point to 5.4%.
- EMEA sales +27.1%, Americas +31.1%.
- Q4 net profit grew 25% to $158.3M but missed consensus of $163.6M. Sales increased to $9.4B from $7.83B and topped forecasts of $9B.
Fri, May. 16, 7:39 PM
- Apple (AAPL) and Motorola Mobility (GOOG) have agreed to settle all outstanding litigation between the companies in a deal that (notably) doesn't feature a patent cross-license. Apple and Google have also "agreed to work together in some areas of patent reform."
- The settlement comes ahead of the $2.91B sale of Motorola Mobility by Google to Lenovo (LNVGY). Google has said it'll retail most of Motorola's sizable patent portfolio.
- Apple settled its legal battle with HTC in 2012. That agreement included a cross-licensing deal with undisclosed terms.
- Is Samsung (SSNLF) next? Apple's legal victories against Samsung haven't made a large dent in Samsung's balance sheet, nor done much to affect Samsung's Android phone sales. Apple and Samsung execs held mediated talks in February, and also reportedly discussed a settlement last year.
Tue, May. 13, 9:42 AM
- The BlackBerry Z3 (BBRY +0.5%), first announced in February, goes for just $200 unsubsidized and is the first phone to be made via the company's Foxconn partnership.
- As suggested by its codename (Jakarta), the Z3 is initially aimed at Indonesia, a market where BlackBerry still has a sizable base. It sports a 5" 960x540 display, a dual-core, 1.2GHz., CPU, a 3G modem (a 4G version will launch later), and a 5MP rear camera.
- Competition will be provided by low-end Android phones from a slew of OEMs (Samsung, Huawei, ZTE, etc.) and white-box vendors.
- The Z3 launch comes as Motorola Mobility, soon to be owned by Lenovo (LNVGY), launches the Moto E, a $129 Android phone featuring a 4.3" 960x540 display, 3G modem, and 5MP camera.
Tue, May. 6, 3:52 PM
- Digitimes reports Samsung (SSNLF) "putting in weaker-than-expected handset component orders to the supply chain" amid toughening competition, particularly in China. The site adds Samsung, which last month launched its latest flagship (the Galaxy S5), is mostly expected to cut orders for cheaper smartphones.
- The report comes a few days after InvenSense (INVN -2.8%) offered a soft June quarter outlook, while estimating Samsung will return to accounting for a mid-30s % of revenue after making up 47% of March quarter sales.
- Strategy Analytics estimates Samsung saw its smartphone share fall 120 bps Y/Y to 31.2% in Q1 (89M shipments out of 285M), following many quarters of steady share gains. Strategy also estimates Lenovo (LNVGY) grew its share to 4.7% from 3.9%, and that Huawei's share was steady at 3.9%.
- Other Chinese OEMs, including Xiaomi, ZTE, and Coolpad, have also been seeing healthy shipment growth amid an industry mix shift towards cheaper phones aimed at emerging markets. Xiaomi (also a major InvenSense client) is looking to roughly double its shipments in 2014 to 40M.
- Other suppliers with heavy Samsung exposure: OLED, MXIM, SYNA, ANAD.
Fri, May. 2, 12:43 PM
- Citing strong phablet sales and extended upgrade cycles (something CIRP has already observed), IDC estimates global tablet shipments only rose 3.9% Y/Y in Q1 to 50.4M units. That's a marked slowdown from Q4's 28.2% growth, and also below IDC's full-year growth forecast of 19.4%.
- Worth noting: Q1 comps were especially tough, given IDC estimated year-ago shipments were up 142% Y/Y. Easier comps for later quarters could help growth rebound a bit.
- Apple (AAPL +0.3%), which last week reported its Q1 iPad units fell 16% Y/Y to 16.4M (Tim Cook partly blamed inventory changes), saw its share drop to 32.5% from 33.2% in Q4 and 40.2% a year ago. With the iPad's ASP at a steep $465, Apple's revenue share might still be above 50%.
- Android (GOOG) tablets now make up ~2/3 of shipments - that's a positive for Google's traffic acquisition costs, given the huge Mobile Safari search ad payments it makes to Apple.
- Samsung (SSNLF) grew its share to 22.3% from 18.8% in Q4 and 17.5% a year ago. Asus (ASUUY) had 5% of the market vs. 5.4% a year ago, and Lenovo (LNVGY) grew its share to 4.1% from a mere 1.3%.
- While tablet growth slows, IDC has estimated the ongoing decline in PC shipments narrowed to 4.4% in Q1. Garner estimated a mere 1.7% drop.
Wed, Apr. 9, 4:52 PM
- IDC estimates global PC shipments fell 4.4% Y/Y (less than a 5.3% forecast) in Q1 to 73.4M, after having declined 5.6% in Q4 and 7.6% in Q3. Gartner thinks shipments only fell 1.7%, and totaled 76.6M.
- IDC chalks up the narrower decline to healthy commercial demand, as buyers purchased Windows 7 systems ahead of Microsoft's (MSFT) termination of Windows XP support. The firm also thinks slowing tablet growth helped out.
- IDC thinks Japanese shipments rose 7%, and U.S. shipments only fell 0.6% thanks to 3.5% desktop growth. Emerging Asia-Pac and Latin American markets, where tablet cannibalization is at an earlier stage, remained weak..
- A mix shift towards developed markets benefits both Microsoft (higher ASPs, less piracy) and Intel (INTC - higher ASPs).
- IDC estimates market leader Lenovo (LNVGY) had a 17.7% share, +220 bps Y/Y. #2 H-P's (HPQ) share rose 150 bps to 17.1%, and #3 Dell's 170 bps to 13.4%. #4 Acer's (ASIYF) share fell 130 bps to 6.8%, and #5 Asus' 20 bps to 5.9%.
- The Q1 numbers suggest IDC's prior full-year forecast for a 6% shipment drop might prove too pessimistic.
- Other companies with strong PC exposure: AMD, NVDA, MU, STX, WDC, HTCH
Thu, Mar. 20, 5:42 PM
- Lenovo (LNVGY) is buying 21 patent families from Unwired Planet (UPIP), including ones related 3G and 4G networks.
- The deal gives Lenovo, now the world's #5 smartphone vendor (could be #3 after the Motorola Mobility deal closes), more negotiating leverage in cross-licensing deals.
- Unwired Planet says it will still have 2.5K issued and pending patents once the deal closes. The company's market cap was only $142.4M as of today's close.
- CC at 8:30AM ET tomorrow.
Tue, Mar. 18, 1:39 PM
- "We will continue to use acquisitions as a means to grow ... Whenever there is a good opportunity, we will grasp it," says Lenovo (LNVGY, LNVGF) CEO Yang Yuanqing. The remarks come with the ink barely dry on Lenovo's $2.9B deal to acquire Motorola Mobility from Google, and its $2.3B deal to buy IBM's x86 server unit.
- Lenovo will still have $2B in cash after accounting for the cash portions of the Motorola/IBM deals, and is thinking of taking advantage of low interest rates to raise more capital. With the company about to become a major server vendor, Lenovo could go shopping for businesses in complementary enterprise markets (storage, networking hardware, IT services, etc.).
- Yang also insists Lenovo will try to make Motorola profitable by leveraging its economies of scale, rather than further trimming headcount. Motorola has already seen massive job cuts in the Google era.
Fri, Mar. 7, 7:05 PM
- Citing "slowing consumer purchases" amid high penetration rates in mature markets, IDC now forecasts tablet shipments will grow 19.4% in 2014 (to 260.9M units), down from a prior estimate of 22% (271M units).
- Tablet growth steadily slowed in 2014: Shipments rose an estimated 142% in Q1, but just 28% in Q4. IDC puts full-year growth at 52%.
- Two silver linings for high-end/enterprise leader Apple (AAPL - 33.8% Q4 share): 1) ASPs are only expected to drop 3.6% in 2014, after falling 14.6% in 2013, as more consumers embrace "higher-end devices." 2) Commercial buyers are expected to account for 14% of shipments, up from 11% in 2013.
- IDC also thinks Windows (MSFT) tablets, struggling to gain a strong consumer foothold, will take over a quarter of the commercial segment thanks to rising convertible adoption.
- The revised forecast still puts tablet sales within striking distance of eclipsing PC sales: IDC expects PC shipments to drop 6% this year to 295.9M. Smartphone shipments are expected to grow 19% to 1.2B.
- Major tablet OEMs (besides Apple): SSNLF, LNVGY, AKCPF
Wed, Mar. 5, 6:06 PM
- After growing ~60% in 2013 (and fueling global shipment growth of 39%), IDC expects Chinese smartphone shipment growth to slow to ~20% in 2014 and just ~10% in 2015.
- Though only 40% of China's 1B+ mobile users now use a smartphone, IDC's Kiranjeet Kaur notes most users who can comfortably afford a smartphone have already bought one. Plunging low-end Android prices could expand the addressable market in a country whose nominal per capita GDP is around $6K.
- India, which has a sub-10% smartphone penetration rate, still presents a major growth opportunity. But with a nominal per capita GDP of ~$1,500, the country is even more cost-sensitive than China.
- With China slowing down and developed markets living up to their name, IDC expects global smartphone growth to slow to 19% in 2014; that still spells total volumes of 1.2B. Tough competition and the ongoing mix shift towards emerging markets is expected to lead the industry's ASP to fall $27 to $308.
- Smartphone OEMs with strong Chinese exposure: AAPL, SSNLF, LNVGY, ZTCOY
- Chip suppliers: QCOM, BRCM, CRUS, SWKS, RFMD, MRVL
- Chinese carriers: CHL, CHU, CHA
Mon, Feb. 24, 4:09 AM
- Microsoft (MSFT) is expanding the number of manufacturers of Windows phones by enabling the latter to use cheaper components with the software.
- Companies that Microsoft is working with include Lenovo (LNVGF), Hon Hai Precision Industry (HNHAY), LG Electronics (LGEAF), ZTE and India's Xola and Karbonn.
- Microsoft provided details at the Mobile World Congress.
- Meanwhile, Nokia (NOK) is launching three Android phones even though the company's handset unit is being sold to Microsoft and the latter is looking to facilitate cheaper Windows phones. The Nokia X will cost €89 and will integrate Microsoft services such as Bing and Skype. The home screen will use tiles, as in Windows phones. Meanwhile, the Nokia X+ is priced at €99 and the XL, with a bigger screen, at €109.
- See Nokia to launch Android phones in China.
Thu, Feb. 13, 4:02 AM
- Lenovo's (LNVGY) FQ3 net profit climbed 29% to $265.3M, easily beating consensus of $247.2M.
- Revenue increased 15% to $10.79B, the first time sales have topped $10B.
- The company's earnings were lifted by robust sales of PCs and mobile devices in China.
- The firm sold 17.3M smartphones and tablets, and 15.3M PCs.
- Laptop sales +11%, desktops +12%.
- However, Lenovo warned that its acquisitions of Motorola Mobility from Google and of IBM's low-end server unit could hurt profitability in the short term. Still, Lenovo reckons it can turn Motorola around within three-to-five quarters.(PR)
Fri, Feb. 7, 3:19 AM
- Reports that Google (GOOG) has purchased a 5.94% holding in Lenovo Group (LNVGY) for $750M are incorrect, the re/code Web site says.
- Re/code writes that the reports were due to a misreading of a filing by Reuters.
- Google is due to receive $750M worth of Lenovo shares as part of the deal to sell its Motorola handset division to the Chinese company for $2.91B in cash and stock.
Tue, Feb. 4, 12:37 PM
- The Nikkei reports Sony (SNE +5.1%) is in talks to sell its Vaio PC unit, and is looking to receive ¥40B-¥50B ($394M-$492M).
- The report follows one over the weekend stating Lenovo (LNVGY), which last month struck deals to buy Motorola Mobility and IBM's x86 server unit, is in talks to acquire Sony's PC ops. Sony called the report inaccurate, but admitted it's exploring options for the business.
- Sony shares have shot higher on the Nikkei's report. Investors like the idea of unloading a loss-generating unit that has struggled to deal with declining PC sales and tough competition from Lenovo, H-P, and others. The company's FQ3 report is due on Thursday morning.
- Thanks to both the Sony report and a massive equity selloff, Lenovo shares are down 16% in Hong Kong over the last two days.
Sun, Feb. 2, 2:21 AM
- Sony (SNE) is considering "various options" for its Vaio PC unit, the company said yesterday, but it described as inaccurate a report that it is in discussions with Lenovo (LNVGF) for a joint venture that would take over the loss-making business' overseas operations.
- The Japanese firm has said in the past that it intends to change its product and manufacturing strategy for Vaio.
- Sony is due to report its latest earnings results this week.
Fri, Jan. 31, 7:20 PM
- After taking in Google's (GOOG) Q4 numbers, FBR estimates handing off Motorola Mobility to Lenovo (LNVGY) could boost the Web giant's op. margin by as much as 500 bps. Whereas Google proper has an op. margin of 34%, Motorola's losses dragged down the company's total op. margin to 29%.
- TechCrunch reports that with Motorola gone, newly-acquired Nest will serve as Google's primary hardware team. Nest, founded by iPod "godfather" Tony Fadell, will reportedly develop gadgets very different from the smart thermostats/smoke alarms it's known for.
- Many observers think the Lenovo sale is at least partly tied to Google's recent deals with Samsung (SSNLF). The reasoning: Samsung's reported willingness to embrace a vision of Android closer to Google's (toning down support for custom apps/UIs, and promoting Google apps/services) is linked to Google's decision to sell its mobile hardware unit.
- It's possible Google also gave Samsung favorable terms in their recent cross-licensing deal. In terms of patent portfolio/breadth, Google held the upper hand.
- In addition to keeping most of Motorola's patents, Google is holding onto the company's Advanced Technology unit, which is responsible for the Project Ara modular phone initiative.
- Lenovo says it will keep the Motorola brand in the U.S., and that it aims to eventually pass Apple and Samsung to be the world's largest smartphone vendor.
- Previous: Google earnings coverage
LNVGY vs. ETF Alternatives
Lenovo (HKSE: 992) (ADR: LNVGY) is dedicated to building exceptionally engineered personal computers. Lenovo's business model is built on innovation, operational efficiency and customer satisfaction as well as a focus on investment in emerging markets. Formed by Lenovo Group's acquisition of the... More
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