Lenovo has announced results for its second fiscal quarter ended September 30th, 2013. Quarterly revenue was $9.8 billion, 13% increase year-over-year. Second quarter profit grew even faster with pre-tax income increasing 30% year-over-year to $265 million, while earnings grew 36% year-over-year to $220 million. Lenovo posted a record 29 million devices sold in the quarter, which is about four devices every second. The company's strong global execution of its protect and attack strategy, innovative product portfolio and an increasing mix of PC plus revenues drove the results.
For the second straight quarter, Lenovo was the world's largest PC vendor, with its highest-ever quarterly market share of 17.7% up 2 points year-over-year. Number one positions in five of the top seven PC markets - which cover one quarter of the world's population - supported this strong performance. Lenovo's PC shipments for the second fiscal quarter were 14.1 million units, again making it the fastest growing of the top five PC vendors. This was also the 18th quarter in a row that Lenovo outperformed the industry as a whole.
The company continues to diversify its business and build a strong foundation for the future in the PC plus era with outstanding performance in PCs and mobile devices like tablets and smartphones. Lenovo's second quarter mix of sales from mobile internet and digital home products, which includes smartphones, smart TV and much its tablet business, was 15% of total revenues, up from 8% one year ago and 4% two years ago, with steadily improving profitability.
In fact, Lenovo ranked second in combined PC and tablet shipments, and was the third-largest supplier of smart connected devices, which includes PC, smartphone and tablet products, growing shipments 36% year-over-year. Lenovo's combined shipments of smartphones and tablets surpassed those of PCs for the second quarter in a row. It also continued to be the world's fourth largest smartphone supplier, rapidly expanding shipments 78% year-over-year. The company's China smartphone shipments continued with strong 64% year-over-year growth. Finally, Lenovo had a record high of 2.3 million global tablet shipments, up 4.2 times year-over-year, driven by sales outside China. Together, these results show Lenovo's rapid ongoing transformation into a PC plus company.
"Lenovo not only remains the top PC company in the world, but is also already the number four player in both smartphones and tablets worldwide and continues growing rapidly. At the same time, we have achieved record revenue and record profit, and improved profitability significantly." said Yang Yuanqing, Chairman and CEO of Lenovo. "We are optimistic about the industry's outlook. Benefiting from corporate refresh and China market improvement, the PC market is recovering, and tablet growth continues shifting to mainstream and entry-level segments, as well as emerging markets. These are Lenovo's strength areas. We are confident that we will capture these opportunities and continue our strong growth."
The company's gross profit for the second fiscal quarter increased 11% year-over-year to $1.27 billion, with gross margin at 12.9%. Operating profit for the quarter grew 38% year-over year to $283 million. Basic earnings per share for the second fiscal quarter was 2.12 US cents, or 16.44 HK cents. Net cash reserves as of September 30th, 2013, totaled $2.6 billion. Lenovo's board of directors declared an interim dividend of 6 HK cents per share.
Geographic Overview
Lenovo's China geography totaled $3.8 billion in revenue in the second fiscal quarter, an increase of 1% year-over-year, which accounted for 40% of the company's worldwide revenue. Lenovo's increased revenue growth in China was driven by strength in smartphones and tablets, which together grew 45% year-over-year. During the second quarter, Lenovo further strengthened its number-one position in China, resulting in an industry-leading market share in China of 33.9%, a 0.2 point year-over-year gain.
In the Asia Pacific geography, Lenovo's revenue totaled $1.5 billion for the second quarter, or 15% of the company's worldwide revenue, up 1% year-over-year. Solid execution drove strong growth of smartphone sales and profitability improvement in the geography. Lenovo saw a record in the Asia Pacific geography, with a PC market share at 14.5% up 0.1 point year-over-year. Driven by continued leadership in Japan and hyper-growth in consumer in India and Indonesia, Lenovo became number 1 in consumer PC's in Asia Pacific for the first time with 12.7% market share. In AP, Lenovo also reached a milestone of having shipped over a million smartphones and tablets.
Lenovo's revenue in the Europe/Middle East/Africa (EMEA) geography continued its rapid growth with a 26% increase in the second fiscal quarter to reach $2.3 billion, or 23% of Lenovo's worldwide revenue. During the quarter, Lenovo had record PC shipments in EMEA at 15%, up 4.2 points year-over-year. Lenovo achieved number one position in PC across 12 EMEA countries, strengthening its number two position in the EMEA PC market.
The Americas geography revenue was $2.2 billion for the second fiscal quarter, an increase of 37% year-over-year, comprising 22% of the company's worldwide revenue. PC volume in the Americas group was up 39% year-over-year allowing Lenovo to outperform the market by 43 percentage points. The Americas geography saw record market share of 11.3% an increase of 3.5 points year-over-year. This was Lenovo's first time to achieve double-digit share in the Americas geography, as well as its first time reaching double digits in the US and Latin America region. With strong execution of its CCE acquisition and a new factory in Brazil, the world's third-largest PC market, Lenovo achieved a number one position in that market as well.
Product Overview
During the second fiscal quarter, Lenovo's Laptop computers were the largest contributor to the company's revenue worldwide, generating 51% of Lenovo's total revenue. Across the industry, laptop shipments were down 12% year-over-year. Despite this challenging environment, consolidated sales for Lenovo's laptop PC business worldwide in the second fiscal quarter totaled $5.0 billion, an increase of 8% year-over-year. The company gained 2.6 share points and achieved a market share of 18.5%. At the annual IFA consumer electronics show, Lenovo introduced new models in its ThinkPad line of commercial laptops, with the ThinkPad T440 and X240, 20% thinner than their previous model namesakes, and all with added battery life. At the same time, Lenovo announced new dual-mode consumer laptops, the Flex 14" and 15" laptops with the ability to flip the screen 300 degrees into a stand mode for a more natural, comfortable touch experience.
Lenovo's desktop PC shipments grew 1% worldwide year-over-year during the second fiscal quarter, compared to an overall industry decrease of 6%. As a result, Lenovo gained 1.3 share points year-over-year and achieved a market share of 16.5%. Consolidated sales of Lenovo desktop PCs in the second quarter decreased 3% year-over-year to $2.7 billion, or 28% of the company's total revenue. The second quarter saw Lenovo introduce several new additions to industry-leading all-in-ones lineup - ThinkCentre servers E93z, E73z and M73z - featuring optional multi-touch screens, improved cable management and new mounting options for vertical, rotate and tilt movements including a full-flat position optimized for touch. Also announced in the quarter was the next generation of Lenovo's popular "Tiny" ThinkCentre M93p, known as the desktop PC that measures the same width as a golf ball.
Consolidated sales of Lenovo's mobile internet digital home products, including smartphones and tablets increased 106% year-over-year during the second fiscal quarter to $1.5 billion, representing 15% of the company's total revenue during the quarter. In China, Lenovo's smartphone shipments increased by 64% year-over-year, helping the company maintain its strong position as the second largest smartphone supplier in that market. At the annual IFA consumer electronics show, Lenovo launched the Yoga 2 Pro, successor to the original 360-degree flip and fold Yoga, and the ThinkPad Yoga, a multimode convertible designed with business-focused features. Also at IFA, Lenovo wowed consumers with its new Vibe X smartphone, the newest member of Lenovo's premium smartphone portfolio, and the new S5000 tablet, one of the slimmest tablets on the market at just 7.9mm.
Last week, in time for holiday sales, Lenovo launched its highly anticipated, multi-mode Yoga tablet, with up to 18 hours of battery life. This product is the latest step in Lenovo's ongoing consumer brand building effort. Lenovo is partnering with Ashton Kutcher - the well known actor and technology investor with 15 million Twitter followers - to showcase this cutting edge technology and innovation. Finally, Lenovo further advanced its brand with the launch of a second flagship store in Beijing in August, with plans for more stores to be opened in coming years.