Lenovo eyes global push as earnings surge 12-fold

PC giant posts surprise first-quarter profit of US$67m

Lenovo Group, the world's third-largest personal computer supplier, will sharpen its focus on the international consumer market next year, emboldened by a fiscal first-quarter net profit that grew a better than expected 12-fold thanks to robust sales to small businesses.

Marking the company's first double-digit sales growth since it bought IBM's personal computer business two years ago, net revenue for the company rose 1,184 per cent in the three months to June to US$67 million from US$5 million a year earlier. Turnover reached US$3.92 billion, up 13 per cent.

The company was expected to post net income of US$20.4 million, according to the median estimate in a Bloomberg survey.

William Amelio, president and chief executive at Lenovo, attributed the company's strong quarterly performance to robust sales growth worldwide, as the company bolstered marketing to small businesses.

Lenovo seized an 8.3 per cent market share in the quarter, shipping 4.87 million PC units, up 22.3 per cent from a year earlier, to regain its standing as the world's No3 from Taiwanese rival Acer, according to preliminary estimates from market researcher International Data Corp.

Mr Amelio also credited 'the steps we have taken for enhanced operational efficiency and expense control', which included plans to cut or redeploy about 5 per cent of Lenovo's global workforce, announced in April. The company took a US$45 million restructuring charge in the quarter, but estimated the amount would be smaller in the three months to September.

'We will not only improve the competitiveness of our existing business, but also actively expand the consumer business worldwide,' said Lenovo chairman Yang Yuanqing, noting that the segment accounts for only 20 per cent of the company's business, compared with more than 40 per cent for its rivals.

He said new Lenovo-brand consumer notebooks will start shipping in key international markets in January next year and a fresh batch of consumer desktops will follow in March or April. 'Our consumer business outside China is either very limited or non-existent,' Mr Yang said.

Venugopal Garre, a research analyst at Credit Suisse, said that strategy would help increase Lenovo's market share over the next few years. He added that Lenovo's margins would come under pressure, 'given the rising costs of commodity components - such as batteries, displays and memory'.

Lenovo also faces increased competition from the world's two leading personal computer suppliers, Hewlett-Packard and Dell, which are expanding aggressively into lower-tier cities across the mainland and building up their consumer business worldwide.

Driven by mainland demand, notebook computers continued to be the largest contributor to total revenue in the quarter, with US$2.1 billion in sales. Revenue from desktop computers was US$1.7 billion.

Revenue from the company's mainland mobile phone business was down 35 per cent to US$113 million on sales of 2.1 million units.

Separately, Lenovo yesterday also named Tian Suning, chairman and founder of private equity fund China Broadband Capital Partners, as an independent non-executive director. He started the fund after stepping down as chief executive of China Netcom, the mainland's No 2 fixed-line phone operator.

Lenovo shares fell 6.25 per cent to HK$5.10 yesterday. The results were announced during the lunchtime market break.