Lenovo has just published its latest quarterly income and the numbers are looking rather good for the company, at least at first glance. Lenovo reported an operating profit of $245 million for Q2 2016, more than doubling the $96 million figure from the previous year.
However, it turns out that $120 million (49 percent) of this operating profit came from the one-off sale of a property in Beijing rather than from its core electronics business. Typically, these type of sales aren’t recorded under operating income, although Lenovo states that the company consistently records property sales in this way. Taking the figure out from the total means that Lenovo actually missed its operating profit expectation of $187 million, at least from the sale of electronic goods. Not a promising sign for a company that is looking for a way to consistently boost its profit margins. Reporting the sale in this was has many analysts miffed, but Lenovo states that it’s all part of an effort to free up cash to reinvest into the company.
“This transaction resulted in recording over $120 million in capital gains which is shown in other operating income in our financial statements … We will continue to look for such asset monetization opportunities to fund some of our investments to drive our business growth.” – Lenovo Chief Financial Officer, Wong Wai Ming
Turning instead to revenue from the company’s electronics divisions, we see a more accurate picture of the company’s core performance. Mobile revenue decreased by 6 percent year on year, while PC income fell by 7 percent over the same period. The exception to this decline was the company’s data center business, which increased its revenue by 1 percent. The division data still suggests that Lenovo is struggling to turn its business around and hasn’t yet found a solution to its slim profit margins.
In total, revenue fell from $10.7 billion to $10.1 billion between Q2 2015 and Q2 2016. Although this year did exceed analyst estimates of $9.7 billion. Lenovo states that integrating its purchases of Motorola and IBM had proven more challenging than expected. The company will be hoping that the release of its new modular Moto Z range will produce improvements come time for its third quarter figures.