Asian technology stocks have lately been dragged back to reality after a run of surprisingly bad results. Lenovo, China’s leading personal-computer maker, has gone in the opposite direction. Its shares have lost about two-thirds of their value in the past three years, but Thursday it revealed a $77 million quarterly net profit, turning around a similar-sized loss this time last year. Its unloved stock rose 4% following the results, while Chinese tech peers such as Tencent 0700, +3.19% — whose shares have surged in the past few years—continued their recent tumble.
Investors should enjoy the good vibes for Lenovo 0992, +5.22% while they last, for several trends that have worked in its favor this year look set to fade.
The global PC market has been buoyed recently by companies replacing computers following the introduction of Windows 10 operating systems: Commercial PCs accounted for nearly two-thirds of Lenovo’s shipments last quarter. That wave of sales could be peaking soon, however, and may not then pick up again for a while, given that the replacement cycle for office computers has gotten longer. The consumer market looks unlikely to take up the slack, meantime: Households are proving reluctant to upgrade to a new desktop given the increased time they spend on smartphones.
Lenovo’s quarterly results also seem to have gotten a one-time boost from its acquisition of a 51% stake in Fujitsu’s PC and laptop business in May. The company didn’t break down the revenue contribution from Fujitsu 6702, +0.86% , but the Japanese brand likely contributed nearly half of the 11% growth in Lenovo’s PC shipments last quarter, based on industry sales data. And while Lenovo’s losses have narrowed in its mobile-phones and data-center businesses, they still look far from becoming big profit drivers.
An expanded version of this report appears on WSJ.com.
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