Slumped Lenovo profits still beat expectations

China's leading PC maker Lenovo reported first fiscal quarter profits of US$5 million earlier this month. Although this was sharply down on last year, the results beat market predictions that had forecast a loss over the quarter to the end of June of around US$11 million due to post-IBM acquisition restructuring costs. Lenovo reported a loss in the previous quarter to March due to US$70 million of restructuring costs. However, in the latest results, these costs have come in lower than expected and combined with strong notebook sales have helped company executives smile through financially challenging times. Lenovo is looking to cut around one thousand jobs and relocate its headquarters at a cost of US$100 million following its acquisition of IBM's personal computer unit at a cost of US$1.25 billion in May last year.

At the press conference to report the results, Lenovo Chairman, Yang Yuanqing explained that consolidated revenue increased 38 percent year-on-year to US$3.5 billion for the company's first fiscal quarter up to June 30. Yang also reported the company's global PC shipments up by more than 12 percent year-on-year ahead of a 9 percent industry average. 'We are encouraged by the progress we are making in transforming the company while at the same time, growing market share and maintaining our overall profit margin in a highly competitive market,' added Lenovo President and CEO William J. Amelio.

According to figures from IDC, Lenovo's global market share rose over the quarter from 7.5 percent to 7.7 percent. Notebook shipments were up 23 percent over the three months and came to account for 51.6 percent of total revenue. Desktop sales accounted for 41.8 percent, while strong growth in the company's mobile handset business saw revenues up 64 percent to account for 5 percent of total revenue. The company also claims a 35.3 percent share of the domestic China market, up from 33.8 percent a year ago.

However, some industry analysts are still cautious about Lenovo's short-term prospects, with rival US PC maker Dell expected to push the Chinese company hard on price in coming months, possibly triggering price wars across international markets.

CMI - 22/8/06