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Time For A Reboot?

Lenovo tops estimates

Image source: Lenovo TY Lim, a katz, 4 Girls 1 Boy, T. Lesia - Shutterstock

What's going on?

Chinese technology firm Lenovo delivered a strong set of fourth-quarter earnings on Thursday – although wider trade war concerns shut down its share price by 3%.

What does this mean?

For Lenovo, the world’s largest PC maker, revenue of $12 billion in its fourth quarter topped analyst expectations. Strong sales at its traditional PC- and smart device-making division (approximately 75% of the company) helped the Beijing-based firm grow its total revenue 10% compared to a year ago. But at Lenovo’s data center business, the increasing popularity of cloud computing drove sales up almost 40% across 2018.

The bumper fourth quarter pushed Lenovo’s sales for the full year beyond $50 billion for the first time in the company’s history. And fourth-quarter profit was equally stellar – almost quadrupling to $118 million compared to just $33 million for the same period last year.

Why should I care?

For markets: Not on cloud nine.

Broader Sino-American tensions may be behind Lenovo’s dreary share price performance in recent weeks. Despite recapturing its number-one position in PC shipments last year, fears that higher tariffs could soon be imposed on its products may result in fewer computers leaving Chinese ports. Overseas computer-cravers could turn to American rival HP instead: on Thursday, it reported revenue from its desktop division rose 7% last quarter. But with the US blacklisting telecoms giant Huawei last week following a breakdown in trade negotiations, investors appear to be increasingly apprehensive about both Chinese and wider tech stocks.

The bigger picture: When in doubt, flock to bonds.

Blockbuster earnings aren’t always enough to entice investors. Broader macroeconomic uncertainties can overshadow a single company’s successes and, in times of doubt, investors usually flock to the safety of government bonds – particularly those of the most resilient economies. Longer-term US bonds are seen as the epitome of safety: America can always print more dollars to pay them back. And with higher demand leading to higher prices, the return those bonds offer investors (their yield) fell on Thursday to its lowest level since 2017.

Originally posted as part of the Finimize daily email.

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