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2010/11 Annual Report Lenovo Group Limited 17
In January 2011, Lenovo announced an agreement to establish
a strategic joint venture with NEC Corporation (NEC). This joint
venture would create the largest PC group in Japan, giving both
Lenovo and NEC a unique opportunity to grow their commercial
and consumer PC businesses in the world’s third largest PC
market through a stronger market position, enhanced product
portfolios, and expanded distribution channels. The anticipated
completion of the transaction is on or about June 30, 2011.
For the fiscal year ended March 31, 2011, the Group’s sales
increased by 30.0 percent year-on-year to US$21,594 million.
Sales of the Group’s PC business were US$20,790 million,
representing a year-on-year increase of 25.9 percent, as its
growth in PC unit shipments was partially offset by lower
average selling price of the products. The mobile business
recorded its first full fiscal year contribution following acquisition
with sales of US$804 million. The Group’s gross profit
increased by 32.1 percent year-on-year to US$2,364 million
and gross margin increased from 10.8 percent in the previous
fiscal year to 10.9 percent. The Group’s effective margin
management, increased mix of the Think branded products
and improved overall competitiveness contributed to the gross
margin expansion.
The Group also continued its stringent expense control during
the fiscal year, while still making significant strategic investments
in product innovation, corporate branding, and promotions of
LePhone and LePad. These investments are intended to drive
long-term, sustainable growth and better profitability in the
future. The Group’s operating expenses excluding restructuring
charges and one-off items increased by 24.7 percent year-on-
year to US$1,978 million. As a result, Lenovo’s expense-to-
revenue ratio was down from 9.6 percent in the previous fiscal
year to 9.2 percent, a historic low level since the IBM PCD
acquisition in 2005. The Group reported profit before taxation
of US$358 million and profit attributable to equity holders
of US$273 million, increases of 102.9 and 111.2 percent,
respectively, from the previous fiscal year.
PERFORMANCE OF GEOGRAPHIES
During the year ended March 31, 2011, Lenovo achieved
strong performance in all geographies where it has operations,
gaining PC market share across the board in China, Emerging
Markets (excluding China) and Mature Markets, benefiting from
its focus on strategic priorities and solid execution. The Group’s
China business continued to perform well and recorded another
historic high in PC market share. Emerging Markets (excluding
China) continued expanding faster than the overall market under
the Group’s attack strategy to grow share in this geography
while operating loss incurred narrowed significantly. Capitalizing
on the recovery of corporate PC demand, Mature Markets
returned to profit, and its operating margin improved in each
quarter during the fiscal year.
China
Overall, China accounted for 46.4 percent of the Group’s total
sales. The PC and mobile businesses in this country accounted
for 42.7 percent and 3.7 percent of the Group’s total sales,
respectively.
During the fiscal year, China PC market continued to maintain
a growth premium against worldwide PC market, but the
expansion in unit shipments slowed to 12.4 percent year-on-
year. The softening of PC demand in China was due to several
factors, including the high year-on-year comparison base,
slower consumer spending due to volatility in the domestic
stock and real estate markets, and continued government
measures to tighten market liquidity and curb inflation.
Lenovo continued to grow faster than the market and
further extended its leadership in China by protecting its
market positions in key cities, and simultaneously attacking
opportunities arising from increasing PC penetration in emerging
smaller cities and rural areas. Lenovo extended its channel
structure in China to increase the chain-store retailer mix in
key cities, expand store front coverage in emerging cities and
grow its network of channel partners focusing on the small-
to-medium sized business (SMB) segment. Lenovo’s unit
shipments growth in China was 22.2 percent year-on-year for
the fiscal year and market share increased by 2.4 percentage-
Lenovo’s MIDH Group kickoff