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PC maker struggles to turn around international business

Lenovo Group, China's top personal computer maker and the world's third-largest, reported a worse than expected 15.56 per cent profit drop in the second fiscal quarter, as the company  continued to struggle to turn around the IBM business it bought two years ago.

Net profit fell to US$38 million for the quarter ended September from US$45 million a year ago, lower than the estimate of US$40 million in a Bloomberg survey of six analysts. Sales edged up 1.29 per cent to US$3.7 billion.

Lenovo made an US$83 million profit in the greater China region in the quarter, but its international business, which largely was acquired from IBM, reported a US$24 million loss.

The IBM acquisition also resulted in US$100 million in restructuring cost including lay-offs,  of which the company said it has booked US$91 million so far into its accounts.

The loss and restructuring cost continue to fuel doubts   about the wisdom of Lenovo's US$1.25 billion acquisition, one of the first major overseas expansions by a mainland firm.

Lenovo  is not  the only mainland firm facing difficulties after making overseas purchases. Television maker TCL Corp has recently announced that it will close the European unit it bought from France's Thomson.

'We had expected most of the difficulties we are experiencing. It is unavoidable,' Lenovo chairman Yang Yuanqing said. 'We believe the acquisition is a better way to expand  in the international market than organic growth.'

Mr Yang promised investors that after the restructuring, which involved cost cutting and improvement in supply chain management, the company will 'grow faster than its competitors'.

Its efforts have not been very convincing, however. The company continued to lose both market share and money in the United States in the third quarter.

Revenue in the US market dropped to US$1.06 billion from US$1.16 billion a year earlier, resulting in an US$18 million loss, compared with a US$28 million profit a year earlier.

Lenovo even failed to make into the top five list in the US market in the third quarter, according to market research firm IDC. Dell was the top vendor in the US with a 31 per cent share, followed by Hewlett-Packard with 22 per cent.

'Large enterprises are our major clients in the US market. However, the segment is shrinking and we face tough price pressure,' said  president and chief executive William Amelio,  a former Dell executive  hired in December last year.

After initial success in Europe including  France and Germany, Lenovo planned to introduce direct sales in the US to tap the growing consumer market, Mr Amelio said.

Globally, Lenovo's market share edged up to 7.8 per cent from 7.7 per cent a year ago, largely because of its strength in China where it dominates, according to  chief financial officer Mary Ma.

Despite increased market share, its margin  dropped to 5.7 per cent in the third quarter from 6.8 per cent three months ago.

Lenovo said profit for the first half to September fell  52.74 per cent to  US$43.09 million, or 0.5 US cent a share, from  US$91.17 million, or 1.03 US cents, a year ago. It will pay a dividend of 2.4 HK cents a share.



Lenovo earnings drop 15.6pc on IBM setbacks