Thu, Jun 03, 2004 - Page 10 News List

Lenovo profit rises despite increase in local competition

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Lenovo Group Ltd (聯想), China's biggest PC maker, increased fourth-quarter profit by 7.5 percent, less than analysts expected, as Dell Inc and Founder Holdings Ltd (方正) won market share. Lenovo shares fell as much as 6 percent.

Net income in the three months to March 31 rose to HK$188.2 million (US$24.1 million) from HK$175.1 million in the year-earlier period. Sales rose about 18 percent to HK$5.03 billion. The figures were derived by subtracting nine-month earnings from full-year figures published in a company statement.

Dell and Hong Kong-listed Founder won China market share with cheaper and trendier products. Beijing-based Lenovo responded with an overseas push, changing its brand from Legend and agreeing to sponsor Olympic Games including the 2008 Games in Beijing. Lenovo targeted corporate clients and introduced higher-priced models such as the Soleil notebook series to lift earnings.

"Things will be very difficult yet for Lenovo," said Michele Mak, Hong Kong-based analyst with ABN Amro Bank NV.

Rivals such as Dell "are gaining market share in China."

"We are in the process of restructuring our business, the results of which will take a while to show up," said Liu Chuanzhi (柳傳志), Lenovo's chairman at a press briefing in Hong Kong.

Lenovo said it will sell computers directly to a "few dozen" of its largest clients, mainly Chinese companies.

"Our inventories may increase in the short-term to cater to the needs of this group of clients," Yang Yuanqing (楊元慶), president of Lenovo, said at a press briefing in Hong Kong. Lenovo expects its China computer sales this year to grow faster than the market's expansion, Yang said.

"Lenovo's core business involving PC sales did relatively well," said Lim Fung-ee, a Hong Kong-based analyst with Deutsche Bank AG. "Other units such as cell phone pulled profit lower."

Founder controlled 11.2 percent of the China's PC market in the first three months this year, compared with Lenovo's 24.1 percent, according to researcher IDC. In the same period last year, Founder had 9.5 percent while Lenovo had 24.5 percent.

Lenovo shipped about 813,000 PCs in China in the three months to March 31, 19 percent more than in the same period last year, IDC's figures showed.

For the full year, Lenovo's net income rose 3.5 percent to HK$1.05 billion. Sales rose 14.6 percent to HK$23.18 billion.

Like TCL International Holdings Ltd, its rival in mobile-phone manufacturing, Lenovo should consider acquisitions in its overseas expansion bid, analysts said.

TCL, China's largest publicly traded consumer electronics maker, merged its television unit with Thomson SA to become the world's biggest TV maker.

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