Lenovo shares dive on lower net profit

By Junathan Yeung (China Daily)
Updated: 2006-11-13 14:29

Lenovo shares dived nearly 11 per cent yesterday after the company reported a 16 per cent fall in its second fiscal quarter earnings.

The world's third-largest personal computer maker that vies with bigger rivals Dell and Hewlett-Packard posted a net profit of US$38 million in the quarter, compared to US$45.2 in the year-ago period.

China's largest PC manufacturer probably needs a longer time to consolidate itself, Golden Sachs said in its latest research report. Intense market competition and Lenovo's huge investment to acquire IBM's PC business are the two major factors that have dragged down the company's earnings and share price. it said.

As one of the Chinese firms trying to forge a global brand by investing overseas, Lenovo has been grappling with considerable expenses arising out of its US$1.25-billion buy-out of IBM's PC arm in 2005.

Most of Lenovo's benefits will come after four to six quarters, JPMorgan said. "Before that, the company would still be subject to significant earning fluctuations from PC industry seasonality and Lenovo's narrow customer base.

"We expect the pricing and gross margin pressure to extend into the third quarter of this fiscal year, given the continued weak corporate demand in the United States."

Bolstering more than a third of the Chinese PC market, the world's biggest after the US, Lenovo's PC shipment in greater China jumped 25 per cent in the second fiscal quarter, generating a revenue of US$1.4 billion, or 39 per cent of the company's total.

Its worldwide PC shipment rose about 10 per cent, versus the industry's average of 8 per cent.

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