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PC giant says some products from US business ill-fitted for overseas growth as third-quarter profit disappoints

When Lenovo Group took over IBM's struggling personal computer business less than a year ago, critics said the company had been forced to acquire the kind of global know-how and branding it had been unable to attain working from its home soil.

But at yesterday's quarterly results announcement, the company's top brass said future growth hinged on imposing a little more Chinese Lenovo and removing some of the IBM from the group's international operations.

'We have to unplug ourselves from the legacy systems that we inherited,' said newly appointed chief executive Bill Amelio.

The company reported a lower than expected net profit of $365 million in the third quarter to December, against analyst forecasts of $425 million to $455 million.

Revenue rose 392 per cent year on year to $31.06 billion with the company including the acquired IBM business for the first time.

Lenovo chairman Yang Yuanqing said the worse than expected performance was due in no small part to competing in overseas markets with old IBM products ill-suited for the task.

'We attempted to penetrate SME and emerging market segments using old products from IBM to compete but they were designed to target relationship clients such as large enterprises,' he said. 'If our new products are to be more competitive we need to reduce costs to meet the most advanced companies' standards.'

The former IBM business recorded a combined quarterly operating profit of $70 million for its three principal regions from almost $20 billion in revenue.

Mr Yang said the firm  planned to enhance competitiveness in international markets by launching Lenovo-branded products at different price points to its IBM ThinkPad-branded computers.

Lenovo's Greater China business remained the linchpin of its operations in the third quarter, comprising 37 per cent of total revenue with operating profit rising to $744 million compared with $567 million in the second quarter. Profit margins grew to 6.5 per cent from 5.6 per cent.

By contrast, the company's profit margin in the Americas shrank 0.2 percentage point to 2.2 per cent, resulting in operating profit of $196 million from $8.94  billion in turnover.

The company fared even worse in Europe, the Middle East and Africa with a 0.2 per cent operating profit margin and recorded a $139 million loss in Asia Pacific excluding Greater China caused by 'intense competitive pressure' in Japan.

'A heightened focus on operational efficiency will enable us to optimise profitability across the globe,' Mr Yang said.

Recent figures published by research house IDC showed the company's global market share had slipped to 7.2 per cent from 7.7 per cent in the quarter  to December with its shipments up 12.6 per cent compared with overall market growth of 17.1 per cent.

The company did better in Asia Pacific excluding Japan, however, increasing its share to 21.5 per cent from 19.9 per cent, the research house said.

Lenovo was the top performing blue chip on the Hong Kong stock market last year. It rose  53.76 per cent over 12 months and  ended the year at $3.58.

Yesterday, the stock slipped 2.2 per cent to close at $3.40 before  the evening results announcement.



Lenovo reveals flaws in IBM concept