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Lenovo Shares Leap 16% After Posting Rosy Fourth-Quarter Results


Lenovo Group, which slipped a notch to No. 4 on the global PC rankings in the first quarter, saw its shares surge more than 16% to a 17-month high on Friday after it unveiled better-than-expected quarterly profits.

The computer maker bounced into the black in its fiscal fourth quarter ended March, buoyed by lower restructuring costs and a U.S. division that eked out its first profit since the firm bought IBM's loss-making PC arm in 2005.

Its shares peaked at HK$3.73 in the first half hour of trade before retreating to HK$3.65, for a gain of 13.7%.

The earnings news triggered a string of upgrades by investment banks.

JP Morgan upgraded Lenovo to overweight from neutral, saying its earnings showed signs of a turnaround. Credit Suisse also upgraded Lenovo to neutral and raised its price target to HK$3.08 from HK$2.45.

"The earnings were pretty good, especially in the seasonally weak quarter," JP Morgan analyst Charles Guo told Reuters. "It gained market share overseas, the first time after it bought IBM's PC arm. This is a big change," Guo said. "It should also benefit from strong PC growth this year."

He raised Lenovo's price target to HK$4.00 from HK$3.20.

But Lenovo will now grapple with a galvanized Acer, which replaced the Chinese firm as the world's third-largest PC maker in the January-March quarter.

And it might have to wage a price war with Dell introducing a low-cost PC on its home turf this year.

Still, analysts believed Lenovo would succeed in keeping costs down and safeguarding margins. "Although operating expenses continue to be high, one of our key concerns, namely gross margin pressures, has been alleviated," Credit Suisse said in a research report.