Lenovo reports loss on expenses, tax charges

BEIJING: Lenovo Group Ltd. posted a surprise quarterly loss on rising operating expenses and a $400 million charge due to US tax reforms.

The world's second-largest PC maker reported a $288.8 million net loss in the three months ended December. That compares with the projection of a $124.5 million profit, according to the average of analysts' estimates compiled by Bloomberg. Revenue increased 6% to $12.94 billion, compared with the $12.5 billion projected.

Worldwide PC shipments rose during the December quarter for the first time in six years - albeit less than 1%. But HP Inc. widened its lead over its closest rival, according to research outfit IDC. Lenovo still hasn't come up with an answer for a smartphone business built on the acquisition of Motorola Mobility from Google four years ago for $2.9 billion. And its data centre business remains undercut by domestic rivals.

Rising memory chip costs will weigh on profitability at Lenovo's PC cash cow, according to Anand Srinivasan and Wei Mok, analysts with Bloomberg Intelligence. "Its phone business remains weak, with a low share and losses that may widen, even with unit and sales gains," they wrote ahead of the earnings.

The miss came as Lenovo swallowed a one-time charge of roughly $400 million as a result of the Trump administration's tax overhaul, though it said the reforms may result in a lower tax rate for its US operations in the longer term.

Lenovo's shares fell 1.3%Alibaba Group Holding Ltd. shares fell the most in 18 months and cut its market valuation by about $30 billion after investments in brick-and-mortar assets and digital media squeezed profit margins in the December quarter.

The Chinese e-commerce giant reported revenue that topped analyst estimates and raised its growth forecast for the 12 months ending in March to 55 to 56 percent. But operating margin shrank to 31 percent in the last quarter from 39 percent a year earlier. Shares fell 5.9 percent in New York trading, the sharpest decline since June 2016.

Alibaba will also buy 33 percent of Ant Financial, helping to clear the way for an initial public offering of the Chinese payments giant. While no cash is changing hands, Ant Financial will end royalty payments to Alibaba that were worth more than $300 million last fiscal year.

Alibaba hasn't held a stake in the owner of Alipay since founder Jack Ma controversially spun out the business in 2011. Ant Financial has had a string of recent setbacks, with its U.S. expansion thwarted by the collapse of a deal for MoneyGram International Inc. while its Chinese business faces greater scrutiny from regulators and increased competition from Tencent Holdings Ltd.