Lenovo returns to profit as key markets pick up
Lenovo Group sees better days ahead, including a possible listing of its shares on the mainland, after doubling net profit year on year in the third quarter on growth in key markets and its restructuring efforts.
The world's fourth-largest supplier of personal computers rebounded yesterday from three consecutive quarters in the red with a better than expected net profit of US$53.1 million in its fiscal second quarter from US$23.4 million a year ago.
That beat the US$24 million median estimate of five analysts in a Bloomberg survey, thanks to a one-off gain of US$38 million from the disposal of some investments.
Total sales declined 5.2 per cent to US$4.1 billion from US$4.3 million. That was still higher than the US$3.7 billion analysts had estimated.
Lenovo, which has benefited from the government-led economic stimulus initiatives in its core mainland market, saw its global market share reach a record high 8.9 per cent in the quarter, research firm IDC said.
'We are starting to see positive signs that the worldwide economy is improving,' chairman Liu Chuanzi said.
The mainland firm, which acquired the personal computer division of International Business Machines Corp in 2005, shipped 6.98 million units last quarter, up from 5.91 million units the previous year. Strong demand came from the Asia-Pacific and emerging markets, including Russia, Latin America and Eastern Europe.
Chief operating officer Rory Read said Microsoft Corp's release of Windows 7, its latest operating system upgrade, was expected to help push companies to update their computers by the second half of next year.
Asked yesterday about the firm's listing plans on the mainland, chief financial officer Wong Wai-ming said Lenovo was keen to do so when the appropriate rules were put in place.
Liu warned, however, that the global personal computer market had not yet fully recovered, which meant the company must keep its costs in check.
During the fiscal second quarter, Lenovo continued its worldwide restructuring plan to make the computer maker more cost-competitive and efficient. The restructuring, which included cutting thousands of jobs, is expected to save Lenovo about US$300 million in the year to March. As of September, the company had a total of 20,757 employees, down from 23,906 a year ago.
Chief executive Yang Yuanqing said the company's expenses-revenue ratio improved to 9.5 per cent, its best since the IBM deal. The ratio was 11.8 per cent the previous year.
Charles Guo, a technology analyst at JP Morgan Asia-Pacific Equity Research, said Lenovo's thin profit margins were unlikely to improve in the next two quarters owing to price pressure from the higher cost of components and demand for low-cost and low-margin personal computers.
