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Michael Logan

China's largest computer manufacturer, Lenovo, will focus on shoring up its shrinking domestic market share and remains reluctant to pursue overseas expansion.
Despite increased foreign competition and calls from investment analysts to expand overseas, the company is knuckling down to defend its territory after on Wednesday reporting disappointing results that missed forecasts. 
'Our primary responsibility is the domestic market. If we can't strengthen our competitiveness in the domestic market, we would not be on firm footing for the overseas market,' chief executive Yang Yuanqing said yesterday.
'We will actively prepare ourselves and look for opportunities for moving outward. We do not yet have a specific timetable.'
The firm registered a tepid 3.44 per cent increase in earnings to $1.05 billion in the year to March, weighed down by losses in its handset, IT services and contract manufacturing businesses. 
Consensus estimates were for earnings to grow 7.55 per cent to $1.09 billion, according to a poll of 19 analysts by Thomson First Call.
As a result the firm's share price slid 5 per cent to $2.375.
Global  personal computer brands such as Dell and HP are establishing low-cost manufacturing facilities in China, intensifying competitive pressure in the industry.  
Computers for export are expected to account for 60 per cent of total mainland production by 2008, according to market researcher iSuppli. This compares with 48 per cent last year.
'The worst thing for Lenovo to do is to continue waiting and do little,' Citigroup analyst Kirk Yang wrote in a recent research report.
Since domestic sales accounted for just 10 to 15 per cent of global demand, the firm had little choice but to focus on overseas markets to drive growth, he argued.
By sponsoring the 2008 Beijing Olympics and changing its name from Legend to Lenovo, the company suggested an intention to boost its international profile.
A global strategy bears risk but rival Asian computer brands such as Acer, BenQ, LG and Samsung have been successful in establishing a presence beyond their home markets.
'All of these examples illustrate that it is difficult, but not impossible, to build a well-known international brand,'  Mr Yang said.
Mainland manufacturers are expected to churn out 90.1 million computers by 2008, accounting for 37 per cent of worldwide production, according to iSuppli. This compares with output of 38.84 million units last year, or 26 per cent of global production.
Looking ahead, Lenovo expects its mainland PC sales growth to outstrip the overall market. 'This year we are again confident of double-digit growth,' Lenovo's Mr Yang said.
Chief financial officer Mary Ma Xuezheng said gross margins for handsets improved to 20.91 per cent in the final quarter from 13.34 per cent in the first nine months, as the company shifted to self-developed phones away from products supplied by original equipment manufacturers.
In the year to March 31, corporate and consumer sales grew 11.7 per cent to $19.68 billion, the company reported yesterday. Overall turnover was 14.53 per cent higher at $23.17 billion.
 Mr Yang declined to say when he expected the division to break even. 'Definitely, we'll be closer to the goal this year than last year.'
Ms Ma also refused to comment on reports Lenovo was in talks to buy IBM's mainland computer operations, which are 20 per cent-owned by rival Founder.  IBM  also declined comment.



Lenovo focuses on China market