Sat, May 27, 2006 - Page 11 News List

Lenovo Group finds the going tough


Shares of Lenovo Group Ltd (聯想), China's largest PC maker, fell after Credit Suisse Group cut its rating on the company to "underperform" from "neutral" on a fourth-quarter loss that was worse than expected.

The stock closed 7.1 percent lower at HK$2.28 in Hong Kong after plunging as much 8.2 percent. The shares dropped 3.9 percent on Thursday following the company's earnings announcement during the midday break. Jeannie Cheung, an analyst at Hong Kong-based Credit Suisse, cut her share-price target to HK$1.88 from HK$3.26, according to the brokerage's daily note.

Lenovo shares have plunged 39 percent in the past six months as investors soured on chairman Yang Yuanqing's (楊元慶) US$1.25 billion purchase of IBM Corp's PC busi-ness, completed a year ago. The firm is losing market share to Dell Inc owing to price competition.

"Increasing investment on brand-building, marketing and product development means that earnings could disappoint," Cheung said in the note.

Lenovo, based in Purchase, New York, posted a net loss for the three months ending March 31 of HK$903 million (US$116 million) on costs for cutting jobs after buying IBM's PC business.

"The challenge ahead is much larger than what Lenovo encountered in the past in China, as we are talking about different markets and different cultures," wrote CLSA Asia-Pacific Markets analysts Frank Shi (史方遒) and Will Xu, who downgraded the stock to "sell" from "underperform" in a report published on Thursday.

The firm's PC market share in the Greater China region, including Hong Kong and Taiwan, was 31 percent in the fourth quarter, compared with 30 percent a year earlier and 36 percent in the previous three-month period, chief financial officer Mary Ma (馬雪征) said at the press conference on Thursday.

Lenovo's sales in the region rose to HK$8.4 billion, or 35 percent of the firm's total revenue, in the fourth quarter, it said, without providing year-earlier figures. PC shipments in the region gained 31 percent from a year earlier.

Lenovo reported an operating loss of HK$252 million during the fourth quarter in North and South America, where it made 30 percent of its total revenue. It also posted an HK$87 million operating loss in Europe, the Middle East and Africa (EMEA), where its PC shipments declined 3 percent in the period.

If Lenovo is not able to turn around its operating margin in the Americas and/or EMEA, "there is a risk of further downside to both our earnings estimates and target price," wrote Kirk Yang (楊應超), an analyst with Citigroup in Hong Kong, in a recent report.

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