U.S. News

Lenovo's First-Quarter Profit Soars 13-Fold, Surprising Market


Lenovo Group, the world's No. 3 PC maker, posted on Thursday a much stronger-than-expected, nearly 13-fold surge in quarterly profit as strong corporate demand offset fierce
competition at home.

Analysts say Lenovo should be able to sustain a recovery in an ailing business abroad after its second straight profitable quarter in the United States, but they also warn of a price war with Dell on its own home turf -- the world's second-largest PC arena.

Buy on Lenovo

One of a handful of Chinese firms trying to forge a global brand, the PC giant dropped to global fourth place early in 2007 after ceding market share overseas, but reclaimed the No. 3 slot in the second quarter from Taiwan's Acer after a hard-fought battle, according to Gartner and IDC.

"This is a good sign: they're seeing light at the end of the tunnel," said Y.K. Chan, a fund manager with Phillip Capital Management. "And they're stepping out of IBM's shadow."  "Lenovo is now riding macro factors in the global PC industry, especially low component costs."

The firm reported a profit of US$66.84 million in its fiscal first quarter ended June, versus US$5.21 million a year earlier. That was more than twice an average forecast for US$32 million, according to four analysts polled by Reuters Estimates.

Recovery Track

Lenovo's shares soared 61% in the April-June quarter, versus 10% for the Hang Seng Index, as investors cheered improvement in an international business inherited from IBM.

China's top maker of personal computers bought IBM's PC arm for $1.25 billion in 2005 and has been saddled with expenses arising from lay-offs and streamlining as it seeks to compete with the likes of Acer and Hewlett-Packard .

Lenovo posted restructuring costs of US$44.8 million for the quarter, compared with US$19.4 million a year ago, partly covering the cost of firing 1,400 workers and shifting jobs to lower-cost countries -- such as Mexico and India -- to try and save $100 million this year, much of which would be re-invested.

Lenovo ranked third globally in terms of shipments after leader Hewlett-Packard and Dell, research companies IDC and Gartner said last month. Acer and Japan's Toshiba followed in fourth and fifth place.

"Strategic initiatives adopted in the past years have already begun to deliver the expected results, but as Lenovo operates in an intensely competitive global marketplace, it must continue to focus on driving global operating excellence," the company said in its statement.