Lenovo banks on mainland market to restore profitability

PUBLISHED : Saturday, 04 April, 2009, 12:00am
UPDATED : Saturday, 04 April, 2009, 12:00am

Lenovo Group expressed confidence the domestic market will improve this year but is less upbeat on a revival in western markets in view of the global downturn as the company struggles to return to profitability.

'Consumers in the domestic market have been showing a stronger propensity to buy our products in the first quarter,' said chief executive Yang Yuanqing. 'I'm confident this will lead to a better operating result for us in each coming quarter this year.'

Mr Yang attributed the improved market sentiment to Beijing's proactive monetary and fiscal policies, especially the 4 trillion yuan (HK$4.54 trillion) economic stimulus package announced in November last year.

Government leaders and some analysts are saying the expansionary economic policies are delivering the intended results. They cite rising electricity consumption, stabilisation and even a small rise in commodities and housing prices, and a gain in last month's purchasing managers' index that signals an economic turnaround.

However, the chief executive of the world's fourth-largest personal computer maker is more cautious in his outlook for western markets.

'Some encouraging news about the global economy is popping up here and there, but it's very hard to say the world economy has bottomed out,' Mr Yang said.

'Given so many uncertainties, we see a true recovery of [the global economy] starting [only] from mid-2010.'

Mr Yang played down worries that a prolonged recovery of the global economy would hinder Lenovo's efforts to return to profitability.

'We have made preparations for the worst-case scenario in mature markets ... and I'm certain that we will turn profitable again in the domestic and global markets,' he said.

But he declined to offer a specific timetable for a return to profit, saying only: 'I've got a clear timetable in my mind.'

Lenovo posted a worse than expected net loss of US$97 million for the fiscal quarter to December on growing competition, shrinking corporate demand and weak sales in high-end western markets and its core mainland market.

The quarterly loss was its first since the March quarter in 2006, when it posted an US$89 million loss on restructuring costs.

Mr Yang said this was not a good time for overseas mergers and acquisitions.

'Even if some asset prices fall to a low level, it does not necessarily mean an opportunity for us,' he said, adding that target companies might be reluctant to sell their assets at prices depressed by the financial crisis.

Lenovo executives had earlier said the company would chase possible acquisitions in emerging markets, especially on the mainland and in Brazil and India.

The company realigned its business structure last week by creating two new units focusing on emerging and mature markets, shifting from a region-based market organisation.

'We will take a 'defensive' strategy in mature markets, but for emerging markets, we will take an 'offensive' position,' Mr Yang said, adding that the company's major weapons would be a slew of innovative products capable of delivering big market shares and high sales.

Mr Yang said the company's mainland sales would grow faster than in other markets, making China account for a greater share of the company's global revenue.

He did not elaborate.

Lenovo relies on the mainland for more than 40 per cent of its global revenue.