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Lenovo says profit growth not a priority

"For this year the goal is revenue growth and we hope profits will improve but that's not our primary objective," Chairman Yang said.

india Updated: Jun 01, 2006 11:32 IST

Lenovo Group Ltd, the world's third-largest PC maker, said profit growth would not be a priority this year as it focuses on expanding market share and is ready to cut prices to keep up with rivals.

"For this year the goal is revenue growth and we hope profits will improve but that's not our primary objective," Chairman Yang Yuanqing said. "This year's profit won't be worse than last year's."

Lenovo is facing pressure on margins as it loses market share to bigger rivals Dell Inc. and Hewlett-Packard Co and expects pricing pressures to continue this year.

"If others are willing to enter into a price war, we will keep pace," he said. "We are used to using price and many other strategies to compete."

The company last week reported a fourth-quarter loss that was almost double consensus market forecasts, and suggested no let-up in the intense competition facing the group. Lenovo's annual profit plunged due to costs arising from its $1.25 billion purchase of IBM's PC unit.

After incurring costs of about $70 million last year due to the restructuring of its IBM purchase, Yang said such costs would not exceed $30 million for this year.

Despite the headwinds, Yang said revenues and profit from China would grow at a double-digit percentage pace. Greater China provides a third of the firm's revenue.

Lenovo's shares are down about 27 per cent since the end of February to Tuesday's close at HK$2.35, compared to a 13.7 per cent decline for Dell and Hewlett-Packard's 2.7 per cent fall.


Intense competition

Lenovo's sharp loss in the quarter ending March 31 reduced fiscal-year 2006 profit to HK$173.24 million ($22.2 million) from HK$1.12 billion a year earlier.

Analysts surveyed by Reuters Estimates on average forecast net profits to reach HK$1.31 billion in the current fiscal year -- a more than seven-fold increase.

Lenovo has transferred about 1,000 jobs from high wage areas like the U.S. to low wage countries like China over the past year, but Yang said he did not expect further lay-offs.

"The goal in the first phase is to stabilise operations," he said. "In the second phase we can look at growth."

Lenovo eventually hopes to transform itself into a notebook powerhouse by twinning expertise in lower-end PCs with the strength in laptops it bought along with Big Blue's PC assets.

Yang said notebooks accounted for just under 50 per cent of group sales last year and the ratio would exceed 50 percent this year, but did not provide any details.

Lenovo wants to keep the IBM brand for its premium products like the "Think Pad", while boosting its own brand for cheaper products, said Yang.