Lenovo results set stage for stake disposal by IBM

PUBLISHED : Monday, 06 August, 2007, 12:00am
UPDATED : Monday, 06 August, 2007, 12:00am


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Following a surprisingly strong fiscal first-quarter result from mainland personal computer maker Lenovo last week, investors must now wait to see if and when International Business Machines (IBM) will dispose of its remaining stake in the world's third-largest PC maker.

About 350 million shares in Lenovo Group could be up for sale from today when IBM's lock-up period for divesting this parcel of its shareholding ends.

The timing of such a sale could be spot on, with Lenovo currently basking in the glow of a solid net income increase in the quarter to June and its first double-digit quarterly sales revenue growth since acquiring IBM's personal computer business for US$1.25 billion in May 2005.

Lenovo's fiscal first-quarter net income reached US$67 million, up 1,184 per cent year-on-year; on sales of US$3.926 billion, up 13 per cent year-on-year.

That was reason enough for Lenovo chairman Yang Yuanqing to assure investors that the merger with the IBM unit 'has successfully completed its integration stage'. He added: 'We are seeing signs from the strategic implementation of our integration plan that tell us the acquisition is on the path to success.'

An analyst's report from Credit Suisse said news of Lenovo's better than expected fiscal first-quarter results and its hopes of an A-share listing on the mainland could help prop up the company's share price in the near term.

'Investors, however, should be alert for an impending IBM stake sale,' the report said. IBM sold off portions of its Lenovo shareholding in a span of four months in the first half of this year, with both deals arranged by Citigroup.

IBM raised about HK$669 million from a stake sale in May and HK$960 million in February. The still company owns about 4.9 per cent of Lenovo, down from the original 18.9 per cent it held after selling its personal computer business to the company formerly known as Legend.

Shares of Lenovo fell 6.25 per cent to HK$5.10 on Thursday as investors sought to book profits following the disclosure of the 13-fold surge in quarterly earnings. The share price was up 10 cents when it closed at HK$5.20 on Friday.