Lenovo logs on with tidy profit

Opening more stores in China helped PC maker post the fastest gain in shipments among its rivals.

Lenovo, the biggest Chinese maker of personal computers, has reported third-quarter profit that beat expectations as the reviving Chinese economy boosted demand. Demand from emerging markets also helped the world's number four PC brand post its strongest results in six quarters.

Net income was US$79.5 million (Dh292m) in the December quarter, compared with a loss of $96.7m for the same quarter in 2008, Lenovo said yesterday. That compares with the $46m estimated by analysts polled by Bloomberg. Revenue rose 33 per cent to $4.78 billion, Lenovo said. It posted the fastest gain in shipments among the world's four biggest PC makers in the quarter after opening stores in rural China, where residents receive government subsidies to buy electronics.

The maker of Thinkpad laptops has more than tripled in Hong Kong trading in the past year as it beat the slowdown in the US and Europe by focusing on emerging markets. "The company managed to grow its market share in China, while at the same time improving its profit margins," said Jenny Lai, who rates Lenovo shares "outperform" at CLSA in Taipei. "This is a sign that the company gets pricing power from the scale of its business. The results were very strong."

Lenovo shares sharply cut their morning losses when Hong Kong trading resumed yesterday. It stood at HK$5.61, down 1.2 per cent late in the afternoon, against a 6 per cent loss at the mid-session close. "The company just returned to profit and it will still take some time to recover in the next few months," said Vincent Chen, an analyst at Yuanta Securities. "We still want to know if its cellphone business will be doing well this year," Mr Chen said, referring to Lenovo's decision to buy back its mobile phone business.

Revenue from China rose 45 per cent to $2.3bn, or 47 per cent of the company's total, Lenovo said. Sales from its emerging-market division, covering India, Brazil and Russia, rose 53 per cent to $857m. Sales in its mature markets division, including the US and western Europe, rose 13 per cent to $1.7bn. Lenovo's market share in China increased to 33.5 per cent, 2.8 percentage points more than a year earlier, the company reported.

"In China, the main difference between Lenovo and other global suppliers is the company already has a strong sales network in the smaller cities," said Dean Lim Dae-yun of Mirae Asset Securities in Hong Kong. Mr Lim said the computer maker's strategy in China had been more aggressive than its competitors. Lenovo accounted for 9.2 per cent of global PC shipments in the quarter, compared with 7.5 per cent a year earlier, said the US research company IDC.

Hewlett-Packard, the industry leader, increased market share to 21 per cent from 19.6 per cent, ahead of Acer's 13.4 per cent, IDC said. Lenovo has tried to return to its roots as an emerging-markets specialist, after it struggled to integrate assets it acquired after buying IBM's PC business in 2005. It warned profits may fall this quarter due to normal seasonality and a climb in component costs.

* with Bloomberg and Reuters