Wed, Feb 05, 2014 - Page 15 News List

Lenovo plunges after five brokers cut stock rating

Bloomberg

Lenovo Group (聯想), which announced US$5 billion of deals last month to bolster its server and smartphone businesses, plunged the most in five years in Hong Kong after the stock was downgraded by at least five brokerages.

Lenovo plunged 16.4 percent to HK$8.41 yesterday, as the world’s biggest PC maker was cut at UBS AG, Morgan Stanley, Jefferies Group LLC, JI-Asia Research Ltd and Kim Eng Securities Ltd, according to data compiled by Bloomberg.

Lenovo CEO Yang Yuanqing (楊元慶) announced his company’s two biggest deals ever within a week as he seeks growth drivers to help weather a slump in global PC shipments. The purchase of IBM Corp’s low-end x86 server unit delivers corporate clients, while the following deal for Google Inc’s Motorola Mobility was criticized for adding an unprofitable business with shrinking sales.

“We expect a negative impact on Lenovo’s net profit — at least in the near term — from the acquisition of Motorola Mobility,” Morgan Stanley analysts led by Grace Chen (陳星嘉) said in a report on Friday last week. “It will take some time before Lenovo turns the business profitable.”

The purchase of Motorola Mobility is “a necessary evil” to help Lenovo boost its US presence and patent portfolio, UBS analyst Arthur Hsieh (謝宗文) said in a report on Monday.

Nonetheless, Motorola Mobility is expected to lose money for the next three fiscal years and that will weigh on Lenovo’s earnings, Hsieh said in downgrading the stock to “neutral” and lowering his target price forecast to HK$10.30 from HK$12.

Lenovo, which has headquarters in Beijing and Morrisville, North Carolina, agreed to pay US$2.3 billion for IBM’s low-end server unit on Jan. 23, adding a business with wider profit margins than PCs and giving it about 14 percent of the market.

It then agreed to buy Motorola Mobility for US$2.91 billion in cash and stock, adding a brand established in the US mobile market and creating the world’s No. 3 smartphone vendor.

Motorola has reported falling sales as it lags behind Apple Inc and Samsung Electronics Co in smartphone shipments.

“Execution risk is high and increasing competition creates concerns,” Mark Po, an analyst at UOB-Kay Hian Ltd in Hong Kong, said in a report yesterday. “The integration of Motorola Mobility is likely to drag down overall profitability.”

The PC market is coming off its worst year ever, with industry shipments dropping 10 percent last year, researcher Gartner Inc said.

Lenovo maintained the No. 1 spot with 18.1 percent of the global PC market last year, helped by a 6.6 percent increase in shipments, Gartner said. Hewlett-Packard Co was second with 16.4 percent.

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