US tax charge wipes out Lenovo Q3 pre-tax profit

Despite recording the highest quarterly revenue in three years, Lenovo has walked away with a $289 million net loss for the third quarter.
Written by Chris Duckett, Contributor

Lenovo has seen the gloss removed from its third quarter, as the company took a $400 million tax hit that almost ate up its pre-tax profit three times over.

Announced on Thursday, the Chinese giant recorded just shy of $13 billion in quarterly revenue, its highest in three years, which the company converted into $204 million of operating profit and $150 million of pre-tax profit.

Once the $425 million in taxation -- including what was described as a "one-off non-cash tax charge of $400 million" -- was taken into account, Lenovo was left with a net loss of $289 million.

"This [tax charge] follows the re-measurement of US deferred tax assets after the recently enacted US tax reform legislation," the company said in a statement.

"In view of this, the company believes that the lower tax rate can benefit the US operations over time."

Compared to the third quarter last year, revenue was up 6 percent, operating and pre-tax profit was up 48 percent, and net profit fell by negative 425 percent.

Broken down by region, China remains the profit centre for the company, contributing $204 million in pre-tax profit, compared to $26 million for the Americas, an $11 million loss in Europe and the Middle East, and a $60 million loss in Asia Pacific.

Revenue wise, America was just shy of $4 billion, while China and EMEA both made $3.6 billion, and APAC brought up the rear with $1.8 billion.

By division, the PC group saw revenue grow 9 percent year on year to $9.3 billion, and was profitable for the second straight quarter in all geographies, contributing $416 million in pre-tax profit overall. For the quarter, Lenovo shipped 15.7 million PCs, which was flat year on year.

The Data Center group reported the highest revenue in two years, coming in at $1.2 billion, and reduced its loss from $94 million last year to $56 million this year.

For its Mobile Business Group, the company reported over $2 billion in revenue, and a reduction of its loss from $112 million to $92 million. Lenovo said it had increased shipments in North America due to Moto handsets increasing their foothold with carriers, but South America remained the group's profit centre.

"We continue to see significant improvement and strong performance in some of the most exciting technology market sectors, smart devices, and datacenter," said Lenovo chair and CEO Yang Yuanqing.

"We saw revenue, margins, profit, innovation, performance, and customer experience all extend the momentum that developed during the prior quarter, and these results reaffirm the transformation strategy we are executing."

Earlier this month, the company's Australian arm reported its results for the 2017 financial year. Lenovo Australia reported AU$700,00 in after-tax profit, after AU$5.1 million of its AU$5.8 million pre-tax profit was handed to the Australian Taxation Office. Revenue from the sale of goods for the reported year was AU$699.5 million, while revenue from services totalled AU$31.9 million.

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