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Tablets Working for Lenovo As Quarterly Profits Increase 22 Per Cent

Posted on: Wednesday, 2 November 2005, 15:00 CST

By KATIE EMSLIE

LENOVO, the Chinese company which earlier this year acquired computer giant IBM's PC-making business, has seen a better-than- expected 22 per cent rise in quarterly profits.

The Beijing-based firm, which now ranks as the third biggest PC- maker in the world, raked in profits of some GBP 25.8 million for the three months to the end of September.

The second-quarter results reflected continued overall revenue and profit growth, stemming from a positive consumer response to new products and growth in emerging markets.

Meanwhile, earnings for the six months to September came in at about GBP 51.8m, beating the average figure of around GBP 51m predicted by a panel of analysts.

However, there were hints from some analysts that Lenovo's net margins had fallen below expectations.

Turnover soared 404 per cent over the year to arrive at around GBP 2.08 billion for the second financial quarter.

Shipments of innovative Lenovo PC products, introduced after the acquisition of IBM's loss-making PC unit in May, grew 13 per cent during the three-month period, industry reports said.

This growth rate was fuelled by the demand for such products as the ThinkPad X41 Tablet PC and the model refresh of the ThinkCentre desktop PC line.

Other notebook products to receive an enthusiastic reception at their launch this year were the ThinkPad Z60, the first wide-screen multimedia ThinkPad notebook, which is targeted at the fast-growing server message block (SMB) market, and the Lenovo Xuri25, an entry- priced notebook aimed at China's consumer and small office customers.

Profitability was recorded in China, the Americas and Asia Pacific, although the PC operations in EMEA (Europe/Middle East/ Africa) reported a loss.

Given this situation, the company acknowledged that there was scope for improvement.

Mary Ma, Lenovo's chief financial officer, said: "The new Lenovo is already showing signs of achieving its potential, although we have much yet to do. In financial terms, we have delivered another quarter of profit growth and our cash position is very good.

"Most importantly, the response of our customers has been very positive as they begin to see evidence of the complementary strengths of the two organisations."

But Mark Po, an analyst with UOB Kay Hian, said the profit was lower than his forecast while revenue was ahead.

"I'd need to see more detail, but I think the share price may have some retreat or consolidation after these results because people were expecting more," he said.

In September, four months on from the IBM deal, Lenovo unveiled a broad restructuring programme to aid it in its goal of integrating its own China-focused business with the vast global business of its new IBM assets.

This integration strategy was thought to be behind the appointment of former IBM senior vice president Stephen Ward to the post of Lenovo chief executive.

The facts

Big shot: Lenovo Group struck a deal with IBM, the technology bellwether dubbed the "Big Blue", in May, acquiring its loss-making personal computer manufacturing unit for some GBP 700 million. The deal made Beijing-based Lenovo the world's third biggest PC-maker, behind Dell and Hewlett Packard.

What is does: The company develops, manufactures and markets reliable high-quality, secure, and easy-to-use technology products and services worldwide.

Home performance: With 15.8 million units shipped last year, China is now the world's second largest PC market and it is forecast to grow by more than 14 per cent this year and next. Lenovo now controls a third of the market, with analysts watching closely to see how well its integration strategy progresses. They will want to see how well Lenovo can marry the different corporate cultures, while keeping its big customers happy and saving on costs.

Source: Evening News; Edinburgh (UK)

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