Computer giant seen facing uncertainty in second quarter amid a potential price war with Dell planning discounts Lenovo Group, the world's third-largest personal computer maker, yesterday reported an 89 per cent fall in its first-quarter profit due to restructuring costs at the personal computer unit it bought from International Business Machines (IBM). Net profit plunged to US$5 million, or 5.9 US cents per share, in the three months to June after the company spent US$19 million to pay for job cuts and relocation. Sales rose 38 per cent to US$3.5 billion. Lenovo's earnings came in better than analysts' forecasts of an US$11 million loss due to excellent notebook sales and restructuring costs that lagged behind expectations, said Kenny Tang Sing-hing, an associate director at Tung Tai Securities. 'Lenovo will face uncertainty in the second quarter because its main rival Dell has announced plans for price cuts that may trigger a price war in the global computer market,' Mr Tang said. President and chief executive William Amelio declined to forecast the extent of price cuts for the rest of the year. 'Price pressure is a great challenge to us in such a highly competitive industry and our key strategy is to cut expenses to maintain profitability,' he said. To compete better, Lenovo is cutting about 1,000 employees and moving offices at a cost of US$100 million after acquiring the personal computer unit of IBM for US$1.25 billion in May last year to become the third-largest PC maker after Dell and Hewlett-Packard. The company, which said the restructuring could save as much as US$250 million a year, reported a loss in the quarter to March after booking US$70 million of restructuring costs. The remaining US$30 million will be taken into account this fiscal year. Its global market share rose to 7.7 per cent at the end of June from 7.5 per cent a year ago, according to IDC, a market research company. Gross profit margin, which decreased to 14.3 per cent from 15.3 per cent a year earlier, improved 0.3 percentage point in the company's first quarter compared with the previous three months. 'Price pressure is definitely part of our life,' chief financial officer Mary Ma said. 'I believe we will do the best to maintain price levels.' Notebook computer sales, which rose 23 per cent in terms of shipments, accounted for 51.6 per cent of total revenue. Desktop computer sales accounted for 41.8 per cent. Sales in the mobile handset business rose 64 per cent to US$174 million, accounting for 5 per cent of total revenue. 'We are well positioned in high-growth areas, such as emerging and small and medium-sized business markets and will sustain our strong momentum in China while enhancing our relationship business outside [the mainland],' chairman Yang Yuanqing said. Sales in the Greater China region, which made up 38.5 per cent of total sales, rose 31.6 per cent to US$1.34 billion. The company said it had a 35.3 per cent market share in China by the end of June compared with 33.8 per cent a year ago. Revenue in North and South America, which made up 29.2 per cent of total sales, rose 43 per cent to US$1.01 billion. Sales in the Asia-Pacific, which accounted for 13.3 per cent of the total, surged 45 per cent to US$416 million, boosted by strong growth in India and an improvement in business in Japan. Net cash reserves fell 1.7 per cent to US$741 million. The shares closed down 2 per cent at HK$2.47 yesterday before the result was announced.