Lenovo Q1 profit up 6 p.c. after IBM PC buy

CIOL Bureau
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Sophie Taylor


HONG KONG: Top Chinese personal computer maker Lenovo Group Ltd. posted a 6 percent rise in quarterly profit on Wednesday, topping forecasts, after including for the first time the struggling PC business bought in May from IBM.

The $1.25 billion purchase made Lenovo the world's third-largest PC maker, behind only Dell Inc. and Hewlett-Packard Co., but some analysts are worried about the firm's ability to turn around the IBM assets.

Lenovo said on Wednesday that the acquisition was already paying off, and that its global PC business is profitable.


"We are generating the anticipated benefits of the acquisition quickly, ahead of schedule. Customers are embracing the new Lenovo," new Chief Executive Stephen Ward, who joined from IBM, said in a statement.

After the deal closed in May, Ward sent a letter to employees saying he aimed to double Lenovo's profit within three years.

"Lenovo outpaced the PC industry in emerging markets, and we are focused on driving similar momentum in mature markets," Ward said on Wednesday.


Lenovo reported a net profit of HK$357 million ($45.94 million) for the quarter through June, compared with a profit of HK$336.8 million in the same period a year earlier, which did not include the IBM assets.

A first-quarter profit of HK$310 million was predicted by three analysts polled by Reuters, although they and others said forecasting would be difficult until they saw more information about the IBM assets.

First-quarter turnover more-than-tripled to HK$19.6 billion from HK$5.9 billion a year earlier, as Lenovo added IBM's sprawling global sales network, complementing its own position as China's dominant PC seller.


Its gross margins expanded to 15.3 percent, from 13.75 percent a year earlier.

Overall PC sales in China are expected to grow 13 percent from the 15.8 million units sold in 2004, market research firm IDC has said.

But with Lenovo controlling 26 percent of the market last year -- 32 percent including IBM's share -- most analysts believe the company is unlikely to boost its dominance at home and might even lose share to global rivals Dell and Hewlett-Packard.

(Additional reporting by Doug Young in Shanghai and Wendy Lim in Hong Kong)