Lenovo Group, the world's third largest personal computer (PC) maker, confirmed yesterday that the incorporation of IBM worldwide, including the PC unit in Taiwan, has been going smoothly.

Speaking after the special shareholder meeting yesterday, Vice-President of Lenovo Group Anders Cheung said that the businesses of 60 of IBM's overseas subsidiary companies have been transferred to Lenovo after the company was recently given approval to acquire the personal computer division of IBM.

"Only a few other subsidiaries are yet to be transferred," he said.

"The acquisition of IBM's Taiwan unit has been basically completed, with some registration procedures to be completed in a few months," Cheung said.

"I don't think business in Taiwan will be affected by any non-business reasons."

The market was concerned that restrictions on mainland direct investment in Taiwan would be a cause of a degree of uncertainty regarding the success of incorporating IBM's Taiwan PC unit, an important part of IBM's global supply chain, into the Lenovo Group.

The confirmation of successful incorporation has immediately led to an upward forecast adjustment from investment banks concerning Lenovo's prospects.

Following the acquisition of IBM's PC division, Lenovo's main task is to maintain relationships with IBM's existing customers, the company sources said.

Lenovo is going to present its half year results within the next two weeks.

Regarding the impact of the appreciation of the renminbi on the company, Ma noted that the 2.1 percent appreciation would have only a limited impact on reducing the competitiveness of the company's products in overseas markets.

Lenovo agreed to buy IBM's loss-making PC business on December 8, 2004, for US$1.75 billion.

Lenovo is now the world's third-largest PC maker, after Dell and Hewlett-Packard.

According to an International Data Corp (IDC) survey released last month, Lenovo Group's market share in the personal computer business in the Asia-Pacific region (excluding Japan) was 19 percent in the second quarter of this year, up 8.1 percentage points from the preceding quarter.

UBS rating

Giving a confidence boost to Lenovo's prospects, UBS has elevated the rating and target price of Lenovo Group yesterday with the rating upgraded from "reduce" to "buy" and the 12-month target price increased by 74 percent from HK$1.8 to HK$3.13.

The brokerage suggested that while the market remains negative about the company after its IBM PC business acquisition, it believes the company could deliver solid earnings with cost savings in the next three to four quarters.

Accordingly, UBS has raised the forecast for the company's earning per share in 2007 financial year by 24 percent from HK$0.17 to HK$0.21.

However, the brokerage noted that the company faces limited growth as China's PC market is saturated by fierce competition among domestic and multinational companies.

Therefore, the brokerage firm believes that Lenovo should push hard to translate the company's local expertise into other emerging markets, though it does not see a convincing strategy for the company to counter Dell's formidable direct-sale business model.

The company's shares surged by nearly 4 percent to close at HK$2.7 yesterday after the announcement of the UBS report's intention to lift the target price of Lenovo from HK$1.8 to HK$3.13.

(China Daily August 2, 2005)