The world’s second-largest PC maker reported a US$289 million net loss in the three months ended December. That compares with the projection of a US$124.5 million profit, according to the average of analysts’ estimates compiled by Bloomberg.

Lenovo’s struggles in smartphones, where it’s getting squeezed by rivals and higher component prices, are overshadowing improvements in its data centre and PC divisions. CEO Yang Yuanqing doesn’t expect the business to break even in the second half with more time needed to turn around a unit that has yet to make money from its 2014 purchase of Motorola Mobility for US$2.9 billion.

“They just need to figure out their messaging. I don’t know what Lenovo stands for from a phone perspective,” said Anand Srinivasan, an analyst at Bloomberg Intelligence. “I would characterise mobile as mixed.”

Total operating income was US$204 million, compared with the US$201 million projected, while revenue increased 6% to US$12.94 billion.

Shares of Lenovo fell 0.4% to HK$4.49 as of 9.41am in Hong Kong. The stock has gained 2% in 2018 after three straight annual declines.

Sales from the mobile business fell 5% in the quarter and the division had a pretax loss of US$92 million after excluding accounting charges.

“Turning around the business is still our goal, but we probably need more quarters to deliver that result,” Yang said in an interview. “We are working on that, we believe sooner or later it will make profit. Profitability will be a key priority for this business.”

PC unit sales rose 8% with a pretax profit of US$416 million. Worldwide PC shipments rose during the December quarter for the first time in six years – albeit less than 1%. But HP Inc widened its lead over its closest rival, according to research outfit IDC.

Lenovo swallowed a one-time charge of roughly US$400 million as a result of the Trump administration’s tax overhaul, though it said the reforms may result in a lower tax rate for its US operations in the longer term.