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Lenovo figures lower than forecast
(China Daily)
Updated: 2005-06-09 09:05

HONG KONG: The world's third-largest PC maker, China's Lenovo Group Ltd, announced its results as largely unchanged from the previous year and slightly below market expectations yesterday.

The company's results, the first since its acquisition of IBM's PC division, showed consolidated turnover dropped by 2.7 per cent to HK$22.55 billion with a final earnings per share figure of HK$14.99 versus HK$14.09 the year before.

Reuters analyst estimates derived a mean EPS forecast of HK$15.22 and an expectation of turnover around HK$23.98 billion. Most of the analysts had an "underperform" or "sell" rating on the stock.

The last quarter's profit also dropped from HK$166 million compared to HK$188 million a year earlier on the back of a 12 per cent fall in its PC sales in China.

One analyst at a United States investment bank commented: "It's still too early to say whether there has been any benefit from Lenovo's acquisition of IBM's PC division and the market remains cautious until all the talk results in a significant boost to the bottom line."

Niki Chu, an analyst at local brokerage house Sun Hung Kai Securities, who has a "sell" rating on the stock commented: "The results were largely in line with our forecasts but the major concern remains on the outlook on IBM's old PC division and whether it (the new Lenovo) will be able to maintain the current staff and client list from IBM."

Chu added that the acquisition may not be too good for Lenovo's future as it still faces tough competition from HP and Dell in its home market and has to establish its dominance there before taking on the world.

Further exacerbating Lenovo's woes was a recent news report about an email from a Dell employee saying buying IBM computers was like supporting the Chinese Government. Dell later retracted the statement saying this was the view of an individual and not of the firm. This raised fears about whether other competitors may also capitalize on the recent tensions between the US and China to win business away from the company.

Lenovo CEO Steve Ward dismissed the matter during a press conference in Hong Kong by saying: "We prefer to focus on our customers and innovation and not on what competitors have done. We intend to make Lenovo a household name."

Ward also said he was upbeat about Lenovo's future. "If you look at our employee retention, it remains the same as a year ago. Ninety-three per cent of old IBM customers surveyed are positive about Lenovo."

Lenovo will be using the IBM name and logo for up to five years but has big shoes to fill, and has to move fast as the challenge remains on building a brand that matches that of "Big Blue," which has almost a 100 year history of leadership in the technology market, before competitors eat away its market share.

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