Powered by new smartphone and enterprise engines, profitability set to expand

• US$14.1 billion in revenue
• Pre-tax income before non-cash, M&A-related accounting charges* of US$348 million and pre-tax income of US$274 million
• Net income before non-cash, M&A-related accounting charges* of US$327 million and net income of US$253 million
• Achieved record high milestone of 20 percent PC market share**
• M&A delivers more balance: 65 percent of revenue now from PCs, 24 percent from Mobile and 9 percent from Enterprise vs. one year ago when PCs were 81 percent
• Basic EPS of 2.32 US cents, or 17.99 HK cents
• Net cash reserves of US$1.3 billion (as of December 31, 2014)

HONG KONG — (BUSINESS WIRE) — February 2, 2015 — Lenovo Group (HKSE: 0992)(PINK SHEETS: LNVGY) today announced consensus-beating results for its third fiscal quarter ended December 31, 2014, showing a strong PC business and fast traction in the integration of its Motorola Mobility (Motorola) and former IBM System x, x86 server (System x) investments. Quarterly revenue was US$14.1 billion, a 31 percent increase year-over-year.

Third quarter pre-tax income before non-cash M&A-related accounting charges was US$348 million, up 8 percent year-over-year. These non-operational, non-cash, M&A-related expenses totaled US$74 million and included charges such as intangible asset amortization and interest on promissory notes related to the Motorola and System x investments. Including these expenses, pre-tax income was US$274 million, down 15 percent year-over-year. Similarly, third quarter net income was US$253 million, down 5 percent, while net income before non-cash, M&A-related accounting charges was US$327 million, up 23 percent.

Lenovo’s core PC business remains strong even as it drives a significant transformation and diversification with the addition of the Motorola and System x businesses. Balance has become a major strength for Lenovo: PCs now account for 65 percent of the company’s revenue, while Mobile delivers 24 percent and Enterprise contributes 9 percent. Just a year ago, PCs accounted for 81 percent of Lenovo’s business.

“This quarter, we are at the starting line of a new race, but the results show that we have the right strategy, we made the right acquisitions and we executed well globally, so I am confident we are ready to win,” said Yuanqing Yang, chairman and CEO of Lenovo. “Our core PC business maintained its leading position and further improved profitability. The two newly acquired businesses are achieving great momentum in their first quarter of integration. They are definitely becoming our growth engines. Motorola is already a global strength: for the first time it sold more than 10 million units in the quarter and it is now re-entering the China market. Meanwhile, we have a strong start with the System x integration, even while we further refine and develop it, leveraging Lenovo’s operational excellence and efficiency to be even more competitive. I remain fully confident we will meet all of our financial commitments this year, and also that we are on the right track to win in the long term.”

The Company’s gross profit for the third fiscal quarter increased 54 percent year-over-year to US$2.1 billion, with gross margin at 14.9 percent. Operating profit for the quarter decreased 3 percent year-over-year to US$325 million. Basic earnings per share for the third fiscal quarter was 2.32 US cents, or 17.99 HK cents. Net cash reserves as of December 31, 2014, totaled US$1.3 billion.

Innovation in Lenovo continues to drive business model transformation and deliver impressive products that drive sales and profitability. In October, the company executed a major global consumer product launch, announcing a new family of Yoga convertible PCs and tablets. Lenovo won a record 77 awards at the Consumer Electronics Show in early January across every category – PC (where Lenovo’s lightest ever LaVie laptop won top honors at the show), tablet, smartphone, applications, software and peripherals – demonstrating its unique breadth and depth of product innovation.

BUSINESS GROUP OVERVIEW***

In the PC Group or PCG, which includes PCs and Windows tablets, Lenovo sales were US$9.2 billion with a record high pre-tax income (PTI) of US$494 million. Lenovo shipped 16 million PCs in the quarter, up 4.9 percent year-over-year, for a total market share of 20 percent. Going forward, consolidation trends favor this business. Lenovo sold its 100 millionth ThinkPad laptop PC, marking a historic milestone for this legendary brand.

In the Mobile Business Group or MBG, which includes products from the Motorola investment, Lenovo-branded mobile phone business, Android tablets and TVs, Lenovo sales were US$3.4 billion generating PTI of negative US$89 million. Motorola shipped more than 10 million units, up 118 percent year-over-year, adding US$1.9 billion to MBG’s revenues. Soon to re-enter China, Motorola is on track to be profitable within 4-6 quarters of close.