Lenovo Group Ltd, the world's third-largest personal computer (PC) maker, yesterday posted a 12 percent year-on-year increase in its profit to HK$365 million (US$47 million) for the October-December period.

 

The company, which sells the largest amount of PCs in the world after Dell and Hewlett-Packard (HP), also said its pre-tax income surged by 46 percent on a yearly basis to HK$498 million (US$64 million) in that quarter.

 

However, the results were lower than analysts' expectations. A number of investment banks and securities houses in Hong Kong said they were considering lowering their full-year targets for the company.

 

The worse-than-expected results were mainly attributed to a sluggish overseas market, said Lenovo's Chief Financial Officer Mary Ma.

 

"Our China business is doing well," she said. "But overseas markets are down a bit."

 

Lenovo's Asia-Pacific business (excluding China) posted a loss of HK$140 million (US$18 million) in the fourth quarter versus a HK$99 million (US$13 million) profit in the previous quarter.

 

Ma said that is because Lenovo still needs time to adjust to the foreign market. She said the company's business strategies and models outside China also need to improve.

 

She elaborated by taking the Japanese market as an example. Lenovo was too focused on Tokyo, where competition is very heated, but neglected other parts of Japan, she said.

 

The company's setback outside China, however, should not alter Lenovo's determination to penetrate overseas marketplaces.

 

The company will restructure its business model and reshuffle its management team to change the situation, according to Ma.

 

As for its IBM assets, Ma said a synergy effect has been seen and the acquired business has contributed to the company's profit.

 

The PC maker, which occupies nearly one-third of the market in China, is stepping up efforts to promote its brand overseas. Its brand is little known outside the country.

 

"This year is a building year for (the Lenovo) brand," Peter Hortensius, senior vice-president of Lenovo's notebook business, was quoted by Reuters as saying earlier this month.

 

Lenovo wants to promote its own brands to foreign small and medium-sized corporate clients to supplement IBM's former ThinkPads, which Lenovo acquired last year and is favoured by high-end users.

 

"When a Chinese company grows big enough in its home market, it will definitely try to globalize. And Lenovo is exactly on that development stage," said Andes Cheng, an analyst with Hong Kong-based South China Research Ltd. "That has become a trend, especially in electronics and consumer sectors."

 

He said Lenovo's ambition to make it internationally has been clearly spelt out by its purchase of IBM's PC business last year for US$1.25 billion.

 

Lenovo, which trades its shares in Hong Kong, ended flat yesterday at HK$1.24 (16 US cents).

 

Its share price slid 5 percent from October to December, outperforming Dell's 16 percent dive over the same period and marginally underperforming Hewlett-Packard's 2 percent slip.

 

Lenovo is now trading at more than 21 times estimated 2006 earnings, higher than Dell's 17 times and HP's 19.

 

It holds 7.7 percent of the world market, behind global leader Dell at 18 percent and Hewlett-Packard Co's 16 percent, according to IDC and Gartner.

 

(China Daily January 27, 2006)