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Lenovo Tanks Amid US Recession Fears, CLSA Downgrade

Shares in Lenovo, the world's fourth-largest PC maker, slid as much as 14 percent on Wednesday amid an Asian tech stock selloff, a downgrade by CLSA and resurgent fears of a recession in the United States.

"It's a bad day for tech stocks. The US market slid and investors are getting increasingly worried about it's heading into a recession, which further hampers tech stocks in the region. Lenovo, for sure, is no exception," said JP Morgan analyst Charles Guo. "I'd say Lenovo is better positioned and more defensive than its counterparts, as its main market is China." he added.

CLSA analyst Jenny Lai downgraded China's largest PC maker to "sell" from "outperform" and cut its target price to HK$5.30, citing a slowdown in IT spending and higher marketing expenditure.

"With 45 percent of overseas revenue from commercial segments, the slow-down of IT spending is a risk to the 2008 outlook," Jenny Lai said in a research report.

"Meanwhile, labor and marketing expenses are trending upwards in light of wage inflation, implementation of a new Labor Law and marketing program activity ahead of the 2008 Beijing Olympics."

Lenovo introduced its first consumer computers in the United States early this month, expanding in a region it entered in 2005 with the purchase of IBM's PC business.

The unveiling of three new notebook computers with advanced features is part of a broader expansion by Lenovo into the global consumer PC market. The company also plans to sell the new consumer computers in France, Russia, South Africa, India, Australia, Singapore and Malaysia, among other markets.

Lenovo has slid 35 percent since November. It dipped to a trough of HK$5.64 in the morning session, walloped along with the rest of the Hong Kong market and technology stocks in the region, analysts said.

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