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Lenovo Faces Tough Economy

December 10, 2008

A top computer maker worldwide, Lenovo Group, expects more consolidation in the PC industry in the current downturn, and its chief executive said the company is open to acquisitions.

Chinese based Lenovo faces increasingly tough market conditions as businesses cut back on technology spending.

“There is no doubt in this economic situation that you will see consolidation of the PC industry,” William Amelio said.

Profit margins at Lenovo, which competes with Hewlett-Packard, Dell Inc, and Acer, have fallen as ferocious competition in a global downturn takes its toll on business.

Last month, Lenovo posted a 78 percent drop in its second quarter net profit.

“In the course of the last several quarters, we saw first India slow down as a nation, then PC shipments as well, and Russia. Now China has slowed down significantly, and that has a big impact on our growth rate overall,” Amelio said.

Lenovo’s commercial business segment was hit especially hard as companies cut back on technology spending.

But Amelio expected things could improve next year as firms resume spending on technology.

When asked about possible job cuts and restructuring of the firm in response to falling profits Amelio said, “All ideas are on the table”.

He did say Lenovo would remain open to possible acquisitions to help drive growth. Recently, sources at Fujitsu Ltd said the Japanese company was in talks aimed at selling Fujitsu-Siemens’s PC division to Lenovo, but keeping the server business.

Brazilian media have also reported on Lenovo’s interest to take over Positivo Informatica SA, the country’s biggest computer maker.

Amelio said his firm was considering all opportunities, “We are working diligently at everything and anything that allows us to be more efficient and effective.”

In 2005, Lenovo bought IBM’s PC arm $1.25 billion, but lost to Asian rival Acer in an effort to buy Europe’s Packard Bell last year.

Lenovo Chairman Yang Yuanqin said the company would also continue investing in growth areas like emerging markets and its consumer business.

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