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Lenovo Q1 profit up 6 pc after IBM PC buy

Top Chinese personal computer maker Lenovo Group Ltd posted a 6 per cent rise in quarterly profit on Wednesday.
PTI | By Sophie Taylor (Reuters), Hong Kong
PUBLISHED ON AUG 10, 2005 04:29 PM IST

Top Chinese personal computer maker Lenovo Group Ltd posted a 6 per cent 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 controls more than a quarter of China's PC market, the world's second largest after the United States, and its landmark deal to acquire IBM's assets is part of a broader move by Chinese companies to look abroad for new growth opportunities.

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 per cent, from 13.75 per cent a year earlier.

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

But with Lenovo controlling 26 per cent of the market last year - 32 per cent 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.

Analysts have blown hot and cold on the IBM purchase since it was first announced in December, applauding Lenovo for its attempt to expand abroad while also worrying about its ability to turn the assets around.

Lenovo shares dropped sharply after the deal was announced, but have rallied recently amid growing optimism and jumped by 5.61 per cent on Wednesday to close at HK$2.825 ahead of its results report amid a broad Hong Kong market rally.

Its stock is now nearly 6 per cent above its level when the deal was announced in December.

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