A man demonstrates a prototype VR headset at the Lenovo booth during CES unveiled before CES International in Las Vegas. The VR headset tracks head movements using cameras in the headset. [Photo / Agencies]

Lenovo Group Ltd's December quarter earnings missed projections as the world's biggest personal computer maker continued its struggle to reboot a floundering PC and smartphone business.

Net income fell 67 percent to $98 million in the quarter that ended December, Lenovo said in a statement.

That compares with the $145.9-million average of analysts' estimates. Revenue was down 6 percent to $12.2 billion compared with estimates for $11.7 billion. The Chinese company warned on Thursday that its market would remain challenging because of macroeconomic uncertainty and rising component prices.

Lenovo remains the world leader in a personal computer market struggling through a prolonged downturn as people opt for smartphones to handle everyday tasks. But it barely maintained pole position over HP Inc during the quarter as its chief rival widened its share of the North American market, according to research firm IDC.

A rise in component prices also pressured margins. The Beijing-based company is now negotiating a deal to tie up with Japan's Fujitsu Ltd and shore up its position, an imperative given the smartphone business it bought with Motorola remains unprofitable.

"Lenovo is as keen as Fujitsu to close a deal soon, so that it can comfortably retain its No 1 PC crown," said Huatai Financial Holdings analyst Ken Hui, in a research note ahead of the earnings statement.

Lenovo is cutting jobs, selling assets and pushing into higher-end devices to weather shrinking demand and competition in PCs.

Three years after Lenovo closed its $2.9 billion acquisition of Motorola Mobility, the smartphone business remains well behind vivo, oppo and Huawei Technologies Co in terms of market share.

Its mobile business turned in an operating loss of $112 million after revenue slid 23 percent to $2.2 billion. Worldwide smartphone shipments dived 26 percent as its market share slipped to 3.5 percent.

Lenovo had pinned its hopes on premium phones, such as one with augmented reality capabilities, to help stabilize the division in the second half and revive its faltering consumer business. Yet it has relinquished smartphone market share at home to rivals that are winning users over with aggressive sales tactics and nationwide store coverage.

Phone shipments, including Motorola's, dived more than 30 percent in 2016, Counterpoint Research estimated. The company was ranked ninth globally during the holiday quarter, ahead of Alcatel but behind South Korea's LG.

Lenovo has said it expects the smartphone business to turn profitable this year, though a paucity of new models cast doubt on its outlook, BOCOM International analyst Chris Yim wrote in a note ahead of the earnings.

Bloomberg