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Lenovo profit beats estimates on China sales surge
Published on: 2010-02-04
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Feb. 4 (Bloomberg) -- Lenovo Group Ltd., China’s biggest maker of personal computers, reported fiscal third-quarter profit that beat analysts’ estimates as the reviving Chinese economy boosted demand for technology products.

Lenovo posted the fastest gain in shipments among the world’s four biggest PC makers in the quarter after setting up more stores in rural China, where residents get government subsidies for buying computers and electronics. The maker of Thinkpad laptops has more than tripled in Hong Kong trading in the past year as it countered the slowdown in the U.S. and Europe by focusing on emerging markets.

“The company managed to grow its market share in China, while at the same time improved its profit margins,” said Jenny Lai, who rates Lenovo shares “outperform” at CLSA Ltd. in Taipei. “This is a sign the company gets pricing power from the scale of its business. The results were very strong.”

Revenue rose 33 percent to $4.78 billion, Lenovo said, beating Lai’s estimate of $4.5 billion.


China Revenue


Lenovo fell 6 percent to HK$5.34 in Hong Kong today at the midday break before the earnings announcement. This pared the stock’s gain in the past 12 months to 256 percent, compared with the 56 percent advance in the city’s benchmark Hang Seng Index.

Revenue from China rose 45 percent to $2.3 billion, or 47 percent of the company’s total, Lenovo said. Sales from its emerging-market division, which covers India, Brazil and Russia, rose 53 percent to $857 million, it said.

Lenovo’s market share in China increased to 33.5 percent, 2.8 percentage points more than a year earlier, it said.

“In China, the main difference between Lenovo and other global suppliers is the company already has a strong sales network in the smaller cities,” Dean Daeyun Lim, who rates Lenovo shares “buy” at Mirae Asset Securities in Hong Kong, said before the announcement. The computer maker’s strategy in China has been “more aggressive” than its competitors, he said.


PC Shipments Rise


Lenovo accounted for 9.2 percent of global PC shipments in the quarter, compared with 7.5 percent a year earlier, according to research company IDC. Hewlett-Packard Co., the industry leader, increased its market share to 21 percent from 19.6 percent, ahead of second-ranked Acer Inc.’s 13.4 percent, according to the Framingham, Massachusetts-based researcher.

Shipments of PCs in China climbed 40 percent last quarter, compared with the 24 percent rise in the U.S., according to IDC.

Raleigh, North Carolina-based Lenovo unveiled more than 20 products earlier last month at the Consumer Electronics Show in Las Vegas, including a new tablet computer, as the company aims to catch Hewlett-Packard and Acer, which lead in the market for lower-specification laptops known as netbooks.

The Chinese company, which moved its headquarters to the U.S. after buying the PC division of International Business Machines Corp. in 2005, last month completed the $200 million acquisition of the mobile-phone unit it sold in 2008, as it seeks to broaden the range of its consumer products.

Lenovo will one day ship more phones than personal computers in China, Chief Executive Officer Yang Yuanqing said on Jan. 22, without giving a timeframe.

Sales in Lenovo’s mature markets division, which includes its operations in the U.S. and Western Europe, rose 13 percent to $1.7 billion. Lenovo emerged from three straight quarterly losses in the three months ended September, as sales in China helped compensate for falling demand from U.S. and European corporate clients.

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