Lenovo reduces losses

PC giant Lenovo's latest financial results suggest that the firm is beginning to control losses and should show further improvement this year, say analysts. But the company continues to rely on its strong domestic market in China and is still leaking money from the international PC business it bought from IBM last year.

Unit shipments from the firm, the world's third largest PC vendor, grew 12 per cent during the quarter ended June 30, compared to one year earlier. This was well ahead of an industry average of nine per cent, company sources said.

Lenovo's share of the global PC market increased – for the first time since it bought IBM's PC division – to 7.7 per cent, according to Deutsche Bank. This was driven by strong gains in Asia, but US market share continued to decline, although the rate of decrease slowed. Deutsche Bank analysts are optimistic that aggressive price cuts will help push US market share up slightly in coming quarters.

“As Lenovo’s restructuring efforts bear fruit, we expect it to show significant reduction in [operating] costs and operating synergies to kick-in in the December quarter,” predicted Deutsche Bank research analyst William Bao Bean in a research briefing. “In the short term, we would caution that Lenovo may sacrifice margins to maintain share, especially in international markets including the Americas.”

Consolidated revenue was up 38 per cent year-on-year to $3.5bn for the quarter. However, profit was only $5m, a fall of almost 90 per cent after a $19m restructuring charge incurred from the layoff of 1,000 mostly former IBM employees.

“[We] still have much to do,” conceded William J. Amelio, Lenovo’s president and CEO. “We are moving swiftly and aggressively to take the necessary steps needed to make Lenovo a truly world-class global competitor. This will not be easy and it will take time, but I am confident in our ability to execute our action plan to transform this company.”

“We are well positioned in high-growth areas, such as emerging and SMB [small and medium business] markets,” said Yang Yuanqing, Lenovo’s chairman. “We have a very clear strategic focus on our PC business. With this strategy we continue to sustain our strong momentum in China, while enhancing our relationship business outside China.”

However, in its strong home market the company faces challenges from international players, as well as from local competitors in China's smaller cities. “Management has its work cut out for them as pricing pressure rises in China in enterprises from the likes of Dell, which has been aggressive, and new entrants in tier 3 to 6 cities where Lenovo is established but others are now focusing their efforts,” warned Bao Bean.