Lenovo Q3 net slows for 3rd consecutive quarter

HONG KONG: China's Lenovo Group Ltd posted third-quarter net profit that beat forecasts, although growth slowed for a third consecutive quarter with the world's No.2 PC maker highlighting the crisis in Europe and a shortage of hard disk drives as key challenges for the global PC sector.

Lenovo's financial results over the past few quarters have been strong, mainly propelled by an increase in global market share following the acquisition of Germany's Medion and a joint venture deal with Japan's NEC Corp, and strong sales from emerging markets such as China.

Analysts said Lenovo, which last year edged out Dell Inc to rank behind market leader Hewlett Packard Co in PC sales, would need to increase market share in the fast-growing tablet and smartphone sectors as traditional PCs and laptops have become commoditised.

The company has been diversifying into smartphones and tablets with its LePhone and LePad devices, although market share still lags that of major players such as Apple Inc, Samsung Electronics Co Ltd and Chinese companies Huawei Technologies and ZTE Corp.

In the second quarter, Lenovo executives said they had become the No.2 tablet provider in China with an 8.4 percent market share, ranking behind Apple.

"For tablets, there isn't a big contender out there to compete with Apple (globally)," said Jonathan Ng, an analyst with CIMB Research in Singapore, who has an outperform rating for the company. "If you look at China, Lenovo's brand name is pretty strong."

The Beijing-based, Hong Kong-listed company reported a net profit of $153.46 million for the three months ended December, up 54 percent from $99.65 million a year earlier and outpacing the $130.2 million in a poll by Thomson Reuters I/B/E/S. Third-quarter revenue rose 44 percent from a year earlier to $8.37 billion.

"The overall PC growth is not that exciting, but why we like Lenovo is really purely based on its ability to gain market share," Ng said.

Lenovo has also launched an online application store called LeGarden and showcased its first smart TV running Google Inc's Android operating system "Ice Cream Sandwich" in a bid to boost its brand in the sector. The company said it would launch its smart TV in April.

Despite its moves into other sectors, PCs will remain the company's main business.

"We will continue to focus on traditional PCs," CEO and chairman Yang Yuanqing told a teleconference on Thursday. "We want to win in this market until we become the leader. I believe traditional PCs will continue to be our core business."

EUROPE, THAILAND IN FOCUS

Lenovo said its profit margin in the third quarter was 11.4 percent, up 0.2 percentage points from a year earlier, though it fell from a quarter earlier due to the shortage of hard drives, which increased costs, it said.

"Although challenges to worldwide PC demand remain, such as the pace of global economic recovery and the ongoing debt crisis in Western Europe, and even a hard disk drive supply shortage and cost increases, Lenovo remains optimistic that its growth momentum will continue," the company said in a statement.

In November, a senior Lenovo executive said the company aims to maintain margins in coming quarters even though floods in Thailand have disrupted supply chains for hard drives.

Lenovo, formerly known as Legend, has become one of China's best known brands. It plans to restructure to improve its focus on key markets.

In January, Lenovo said its business will be divided into four regions starting April 2. The regions will be China, Asia-Pacific/Latin America, North America and EMEA (Europe, Middle East and Africa). It currently is organized as mature markets, emerging markets and China.

The results came before Thursday's market opened.

Lenovo shares retreated 2.1 per cent in the reporting quarter versus a 4.8 per cent gain on the Hang Seng Index .HSI. Its stock, which is up by about a fifth this year, traded 0.16 per cent higher in early trade at HK$6.20 on Thursday, better than the Hang Seng's 0.92 per cent fall