World’s third largest maker of personal computers, Lenovo Group Ltd.,has recorded a 23 % increase in third-quarter profit, beating estimates, after cutting jobs and boosting market share in Asia.
Net income for the three months ended 31December rose to $57.7 million, or 0.64 cent a share, from $47 million, or 0.52 cent, a year earlier, the company said in an e-mailed statement. Sales rose to $4 billion from $3.98 billion. Chief Executive Officer William Amelio, a former executive at International Business Machines Corp. and Dell Inc., reduced 1,000 jobs last year to boost profitability. Lenovo extended its lead in Asia over Dell and Hewlett-Packard Co. by lowering prices, and said it will use its experience in the region to spur sales growth in developed markets such as the US.
“The results show Lenovo is getting more success in controlling its costs,” said Marvin Lo, an analyst at BNP Paribas SA in Hong Kong. “Revenue is flat year-on-year, so the company has to work more on increasing its market share.”Amelio said in March that Lenovo will cut jobs and move offices at a cost of $100 million after the company completed the $1.25 billion purchase of International Business Machines Corp. business in May 2005. Lenovo moved its headquarters to Raleigh, North Carolina, after the IBM deal.Lenovo forecast savings of about $100 million from the reorganization in the fiscal year ending 31 March, and as much as $250 million in the year starting April.
The company’s shares rose 1.9 % to HK$3.23 at the end of trading in Hong Kong. The stock has fallen 0.2% in the past year, compared with a 17% decline in shares of Dell and a 38 % increase in Hewlett-Packard’s stock.In the Greater China region, which includes Hong Kong and Taiwan, PC shipments rose 17 %from a year earlier, Lenovo said. Third-quarter revenue for the region was $1.6 billion, or 40 % of total sales, compared with $1.5 billion, or 37%, a year earlier, it said.
“Continued high growth in our Chinese business enabled Lenovo to hold global market share,” Yang Yuanqing, the company’s chairman, said in the statement. “We must continue to work diligently to address our most critical challenges of lower expense-to-revenue ratio and operational efficiency.” PC sales in China, the world’s second-biggest market, are expected to rise 13.1% to $17.9 billion this year, according to Bryan Ma, an analyst at market researcher IDC. Sales in the U.S. are expected to gain 8.2 % to $71.4 billion, the researcher said.Lenovo held its position as the top PC maker in Asia, excluding Japan, with a 21.6 %share in the fourth quarter, according to IDC. For 2006, Lenovo had 19.9 % of the market, followed by Hewlett-Packard with 12.6 % and Dell with 8.8 %.
Dell last month opened a technical center in Malaysia, its first outside the U.S., and said it plans to hire 1,000 more workers in the country, seeking to drive economies of scale and sales in Asia. The company said in August it would expand use of Advanced Micro Devices Inc. chips to lower costs in China.In the third quarter, PC shipments in North and South America fell 4 %from a year earlier, the company said, without providing figures. Sales in the Americas fell to $1 billion, 26 % of total revenue, from $1.2 billion a year earlier. Lenovo plans to enter the consumer PC market in the U.S. within the next two years, using the experience it has gained in China and India, Amelio said in an interview last week at the World Economic Forum in Davos, Switzerland.
“We’re concerned Lenovo’s profitability could be hit if it attempts to be too aggressive in expanding in the U.S. market,” said John Koh, who helps manage $950 million, including Lenovo stock, at Daiwa Asset Management Ltd. in Hong Kong.In the U.S. Dell leads with a 31.2 % market share, followed by Hewlett-Packard’s 21.5 %, IDC said. Lenovo isn’t among the top five vendors in the U.S.Shipments in the Europe, Middle East and Africa region gained 3% in the third quarter from a year earlier. Revenue reached $913 million, making up 23 % of total sales.In the Asia-Pacific region, excluding Greater China, shipments fell 1 % in the third quarter, the company said. Revenue for the region, which made up 11 % of total sales, was $460 million. Third-quarter shipments at Lenovo’s mobile-phone unit fell 6 percent from a year earlier, the statement said. Revenue fell to $146 million, from $179 million a year earlier and $166 million in the second quarter. Handset sales accounted for 4 % of total revenue.
The company, which overtook Ningbo Bird Co. as China’s largest domestic cell-phone maker in June, sold 2.1 million handsets for a 6.2% market share in the three months ended Sept. 30, up from 5.8 %a year earlier, IDC said. Fourth- quarter data isn’t available yet from IDC.Lenovo’s purchase of the IBM unit made it the world’s third- largest computer maker after Dell and Hewlett-Packard. The company gained the distribution and sales network covering 160 countries and the rights to use IBM’s brand for five years.