Is the frequent selling of buildings due to a lack of corporate competence or intense market competition?
Lenovo has sold another of its buildings.
On November 28, Lenovo Group (00992 HK) announced its wholly-owned subsidiary Motorola (Beijing) Mobility Technologies had signed an equity interest transfer and framework agreement with CDBC New Town (Beijing) Asset Management. Motorola sold all equity and liabilities of Lenovo Mobile Communication Software (Wuhan) for approximately 1.24 billion yuan.
According to the announcement, the principal asset was a land parcel and an office building named Lenovo Wuhan R&D Property, which is under construction and due to be completed in 2018.
Upon completion of the transaction, Lenovo and its subsidiaries will no longer sell any stock in the company. The proceeds from the sale will be used for general purposes. Pre-tax earnings generated by the sale are expected to be recorded. Lenovo Group will confirm that the actual earnings generated by the sale are disclosed in the company’s quarterly results.
It is worth noting that Wuhan is one of Lenovo’s strongholds. Lenovo landed the project in Wuhan after its acquisition of Motorola in February 2015. It is an important component of the high and new technology industry in Optical Valley, Wuhan. The project has a total investment of 16 billion yuan. In June 2015, Lenovo began to mass produce its electronic products in Wuhan. At the same time, Lenovo set up a Motorola Operations Center in the East Lake Bonded Area, Wuhan to meet the growing demand for overseas orders.
In 2014, Lenovo bought Motorola’s mobile business from Google for $2.9 billion. However, Lenovo’s mobile business hasn’t seen much improvement since the acquisition. In March, Lenovo Group issued US debt to pay for the acquisition of Motorola.
Lenovo’s mobile business seems to be suffering even in the domestic market. OPPO, Vivo and Huawei have had competent offline channels for many years, and Xiaomi and Meizu have rapidly occupied the market via fan marketing and online sales.
Lenovo is losing its sales channels. In its latest financial report, Lenovo mobile accounted for 18 percent of its total revenue. As of September 30, Lenovo mobile’s pre-tax operating losses were as high as $261 million, or about 1.72 billion yuan, during the past six months.
According to previous announcement, in the first half of this fiscal year, Lenovo rented its two office buildings in Beijing after selling them. These two buildings brought benefits as much as $129 million and $206 million in Q1 and Q2 this year.
If you want to have fast financial results, it seems that selling your office is a good idea. In fact, Lenovo sold properties several times over the past year.
In March 2017, Lenovo sold 49 percent of its shares in the Chengdu Lianchuangrongjin for 16.17 billion yuan.
In May 2016, Lenovo sold its entire stake in Lianchuangjiaye for 1.02 billion yuan, where its principal assent was a one-to-six floor real estate in Lenovo Building in Haidian District, Beijing.
On September 18, 2016, Lenovo sold its stake in 41 real estate companies to Sunac China Holdings for 13.8 billion yuan.
On September 30, 2016, Lenovo sold the Beiyuan Building for 1.78 billion yuan. Lenovo Holdings released an announcement saying its wholly-owned subsidiary Lenovo (Beijing) signed a share transfer agreement with Haidian District State-owned Capital Operation Management Center, planning to sell all stocks of Lianchuang (Beijing) Assets Management, whose principal asset is Beijing Lenovo Research building.
Lenovo has been selling buildings frequently. Many outside the company are convinced that Lenovo has done so to maintain its annual results.
However, some analysts believe that although Lenovo’s real estate sales are motivated by financial profits, it may be a sign the company no longer considers real estate to be the focus of its investment strategy.
Meanwhile, Lenovo’s global PC shipments were overtaken by HP in the first quarter. It’s the first time Lenovo has its position as a PC market leader in nearly 15 quarters.