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Lenovo Q1 beats forecasts; outlook worries hits stock

Lenovo Q1 beats forecasts; outlook worries hits stock
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First Published: Thu, Aug 06 2009. 09 22 AM IST
Updated: Thu, Aug 06 2009. 09 22 AM IST
Taipei/Hong Kong: Lenovo, the world’s No. 4 PC brand, reported a smaller-than-expected first-quarter loss, thanks to demand stoked by China’s massive stimulus package, but its stock fell on cautious comments.
Lenovo has been worse hit than rivals such as Acer and HP in the downturn due to its reliance on corporate spending, stemming from its purchase of IBM’s laptop PC arm in 2004, analysts said.
Shares in Lenovo, one of the biggest beneficiaries of China’s move to encourage consumer spending, have surged 50% in the three weeks to Tuesday, outperforming the Hong Kong market. By 8:30am, on Thursday, the stock was down 5% after losing 7% in the previous session.
“The market’s moved a little ahead of itself,” said Edward Yen, an analyst at UBS. “There’s still little evidence of a pick-up in corporate spending, and that’s the biggest worry there.”
The PC sector has been showing early signs of a recovery in recent months, with shipments in the second quarter of this year falling less than expected, and chipmaker Intel declaring that the worst was over for the industry.
On Thursday, Lenovo reported a net loss of $16 million in April-June, its third straight quarterly loss but better than market expectations of a $54 million loss and smaller than the previous quarter’s $264 million loss.
China continued to drive much of Lenovo’s growth, accounting for about 48% of its revenue and led with a 14% growth in sales, as the company turned its focus back to its traditional strongholds of China and other emerging markets.
Nearly half of all computers sold under a rural subsidy programme in China in the first six months of this year carried its brand name.
Lenovo remained cautious on its outlook and retained its forecast of returning to profitability in the third quarter ending in December.
“As the global economy remains uncertain, enterprise customers are still conservative about PC spending,” the company said in a statement.
Lenovo’s overall revenue fell 17% in the first quarter from a year ago as companies froze technology spending, and further hit by rapidly declining prices due to the growing popularity of low-cost netbook PCs.
Some analysts said the company will likely recover faster during the rest of the year as it banks on its pole position in the rapidly growing China market.
“I’m turning more optimistic on Lenovo now and think most analysts will now need to re-look their assessment on the company,” said Ellen Tseng, an analyst at Nomura Securities.
“I now think Lenovo could return to profitability ahead of its own expectations, and think that if it can carry on with its current momentum, they should be profitable by September.”
Lenovo said it will invest further in China to expand its market share and profitability.
Lenovo grew its share of the global PC market in April-June by 0.5 percentage points to 8.7%, research firm IDC said, reversing consecutive quarters of falling market share.
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First Published: Thu, Aug 06 2009. 09 22 AM IST
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