Picture: REUTERS
Picture: REUTERS

Beijing — Lenovo Group posted a surprise loss after taking a $400m 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 $289m net loss in the three months ended December. This compares with the projection of a $124.5m profit, according to the average of analysts’ estimates compiled by Bloomberg.

Lenovo’s struggles in smartphones, where it’s getting squeezed by rivals and higher component prices, are overshadowing improvements in its data centre and PC divisions. CEO 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 $2.9bn.

"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 characterise mobile as mixed."

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

Shares of Lenovo fell 2.7% to HK$4.39 in Hong Kong, the biggest decline since November. The stock is little changed in 2018 after three straight annual declines. Sales from the mobile business fell 5% in the quarter and the division had a pre-tax loss of $92m 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 pre-tax profit of $416m. Worldwide PC shipments rose during the December quarter for the first time in six years — albeit less than 1%. But HP widened its lead over its closest rival, according to research outfit IDC.

Lenovo swallowed a one-time charge of roughly $400m 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.

Bloomberg