Lenovo posts first loss in six years, looks to bounce back after Motorola purchase

The smartphone market has been a tough place to do business this year, with both high and low cost manufacturers feeling the pinch. Lenovo has released its Q2 financial results, revealing some equally mixed fortunes for the company.

Lenovo posted a net loss of $714 million from a revenue of £12.2 billion in Q2, it’s first loss in six years. The main reason is due to a major company restructuring following expensive acquisitions last year in both the server and smartphone markets. Most notable for us was the purchase of Motorola at a cost of $2.91 billion. Following falling profits, Lenovo incurred one-time restructuring costs, including staff lay-offs and clearing of inventory to focus on the Moto brand, setting the company back to the tune of $923 million.

Lenovo stated that the company would have been $166 million in the black for Q2, had it not had these one times costs. However, this would still be 50 percent lower than a year before. The company expects to complete its restructuring by the end of the financial year and estimates that the changes will save around $650 million during the second half of 2015 and approximately $1.3 billion annually.

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On the upside, total company revenue was up 16 percent year on year and up 15 percent on the previous quarter, indicating that sales are heading in the right direction. Looking specifically at smartphones, sales grew by 11 percent YoY and 16 percent QoQ, although the division still ended up making a loss of $217 million from a revenue of $1.4 billion.

“We significantly grew our smartphone business in the rest of the emerging markets, that’s our strategy … We know our China competition is too fierce, so we just shift our focus.” – Lenovo CEO Yang Yuanqing

Part of the problem is China, Lenovo’s largest single market, where company sales have dropped by 12 percent from a year earlier, as the region has quickly grown into one of the most competitive. Lenovo has been making strides to diversify away from this market this year and now sees 70 percent of its revenue come from overseas, up from 19 percent a year earlier.

The company is looking to boost its market share in the U.S. and Europe next year, which might help with its goal is to turn its smartphone business to a profit in the next one or two quarters.