Lenovo sees no limit to size for acquisitions


The move into smartphones, tablets, TVs and home entertainment systems is already paying off, as Lenovo reported a 90 per cent jump in quarterly profit. Photo — Bloomberg

Beijing: Lenovo Group, the second-biggest personal computer maker, said the company's cash reserves of more than $3 billion enable it to pursue an acquisition of almost any size to expand in new business areas. The PC maker is most interested in adding assets to bolster its growing business for smartphones and tablets, and hardware such as servers and storage for business computing, Chief Financial Officer Wong Wai Ming said in a phone interview on Thursday. There is "no limit" for Lenovo when considering the size of targets, Wong said, without commenting on any specific opportunity. "We can actually look at literally every single opportunity because we obviously have the ability to finance."

Chief Executive Officer Yang Yuanqing is pursuing a broad diversification strategy to help weather a global slump in demand for PCs. The move into smartphones, tablets, TVs and home entertainment systems is already paying off, as Lenovo reported a 90 per cent jump in profit in the three months ended March, even as global PC shipments fell 13.9 per cent. Now, Yang is looking to add another prong by boosting sales of the storage equipment and servers that run corporate networks.

Net income climbed to $126.9 million in the fourth quarter, from $66.8 million a year earlier, Lenovo said on Thursday. That beat the $108.1 million average of eight analysts' estimates compiled by Bloomberg. Revenue rose 4.5 per cent to $7.83 billion.

Storage devices
Lenovo plans to become a "relevant global player" in servers and storage devices within three years, Yang said at an earnings conference on Thursday. The company last year allied itself with EMC Corp. to boost sales of storage equipment.

Talks with International Business Machines (IBM) for Lenovo to buy parts of the Armonk, New York-based company's server division broke down after the two sides couldn't agree on a price, a person familiar with the discussions said May 3. The person indicated at the time that talks could still resume at a later date. Wong and Yang both declined to comment on IBM.

While Lenovo can become "a very decent player" in servers by organic growth alone, the company will be open to expansion via potential acquisitions, Yang said in the interview.

'Opportunity-driven growth'
"If we can get a good deal, that's definitely a shortcut but you can't count on that," Yang said. "That's opportunity-driven growth. We still need to prepare the organic growth approach."
Lenovo wanted to pay toward the low end of the $2.5 billion-to-$4.5 billion range that Bloomberg News reported on April 19, while IBM sought a substantially higher valuation, the person familiar said May 3, without providing details. In 2005, Lenovo purchased IBM's personal-computer unit, helping it become the world's second-largest PC manufacturer. The servers rely on similar x86 processors.

IBM was looking to divest a portion of its business with lower profit as it seeks earnings per share of $20 by 2015, compared with $15.25 last year.

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