HONG KONG: Lenovo, the world's No 4 PC brand, is banking on renewed demand from corporates and rapid expansion in emerging markets to fuel growth, as it unveiled a third consecutive quarterly profit.
The PC maker on Thursday, Aug 19 said it had swung back to the black in the fiscal first quarter as its business in mature markets, much of which it inherited following its 2005 purchase of Intranational Business Machines Corp's (IBM) laptop unit, returned to profit.
But Lenovo warned that China will continue to show modest growth, knocking its shares down about 2.5% in a broader market that was 0.3% higher.
"There was definitely some moderation from the hyper growth rates that we saw in the March-April timeframe," Lenovo's chief operating officer Rory Read said during a call after the results.
"We expect it to moderate from there in the coming quarters, but we expect the market to continue to grow and we expect it to continue to grow in all markets."
Lenovo also cautioned that its shift to emerging markets will keep its margins under pressure in the short term, but added a recent component shortage that has hit the global industry and was driving up prices is starting to ease.
Analysts said the outlook for Lenovo was positive with tight cost controls and easing pressure from a shortage of components such as LCD panels and memory chips helping the firm mark a turnaround from the loss it posted a year ago.
"Lenovo's going to definitely survive and do well in the long run," said Joseph Ho, an analyst at Daiwa Securities in Hong Kong, who has an "outperform" rating on the stock.
"It's got a steady market share in China, it's going to gain from IBM's former corporate business in mature markets and it can gain market share in the emerging markets."
Lenovo posted an April-June net profit of US$54.86 million (RM171.71 million), better than the US$16 million loss it made a year ago, and slightly below expectations for a US$57.1 million net profit, according to a poll of three analysts by Thomson Reuters I/B/E/S.
China continued to make up for the a large percentage of Lenovo's sales, accounting for 48.7% of its total revenue in the second quarter, up from the 47% recorded in the last fiscal year.
Its mature markets business saw shipments grow over 48% and make up for 35% of its total sales as returning corporate demand helped return the department to profit for the first time since the global financial crisis.
Strong growth in Lenovo's key markets such as China helped the company post the second-biggest improvement among the top PC brands in the second quarter of this year, with shipments up 47% during the quarter, according to research firm Gartner.
This was better than rivals such as global leader Hewlett-Packard, Acer and Dell, who altogether took about 42% of all PCs shipped in the second quarter of 2010.
Lenovo had 10% of the global PC market in the second quarter, up from 8.2% a year earlier and narrowing the gap behind No 3 player Dell, which had 12.4% in the latest quarter, according to Gartner.
Lenovo has been trying to return to its roots as an emerging markets specialist after it struggled to integrate overseas-focused assets it acquired when it bought the IBM laptop PC business in 2005.
"China will continue to show moderate growth momentum, while the corporate replacement demand that has already shown some growth will gradually pick up in mature markets," the company said in a statement filed on the Hong Kong stock exchange.
Lenovo shares are down about 4% so far this year, having surged 130% last year, compared with a fall about 3% in main index. ' Reuters
The PC maker on Thursday, Aug 19 said it had swung back to the black in the fiscal first quarter as its business in mature markets, much of which it inherited following its 2005 purchase of Intranational Business Machines Corp's (IBM) laptop unit, returned to profit.
But Lenovo warned that China will continue to show modest growth, knocking its shares down about 2.5% in a broader market that was 0.3% higher.
"There was definitely some moderation from the hyper growth rates that we saw in the March-April timeframe," Lenovo's chief operating officer Rory Read said during a call after the results.
"We expect it to moderate from there in the coming quarters, but we expect the market to continue to grow and we expect it to continue to grow in all markets."
Lenovo also cautioned that its shift to emerging markets will keep its margins under pressure in the short term, but added a recent component shortage that has hit the global industry and was driving up prices is starting to ease.
Analysts said the outlook for Lenovo was positive with tight cost controls and easing pressure from a shortage of components such as LCD panels and memory chips helping the firm mark a turnaround from the loss it posted a year ago.
"Lenovo's going to definitely survive and do well in the long run," said Joseph Ho, an analyst at Daiwa Securities in Hong Kong, who has an "outperform" rating on the stock.
"It's got a steady market share in China, it's going to gain from IBM's former corporate business in mature markets and it can gain market share in the emerging markets."
Lenovo posted an April-June net profit of US$54.86 million (RM171.71 million), better than the US$16 million loss it made a year ago, and slightly below expectations for a US$57.1 million net profit, according to a poll of three analysts by Thomson Reuters I/B/E/S.
China continued to make up for the a large percentage of Lenovo's sales, accounting for 48.7% of its total revenue in the second quarter, up from the 47% recorded in the last fiscal year.
Its mature markets business saw shipments grow over 48% and make up for 35% of its total sales as returning corporate demand helped return the department to profit for the first time since the global financial crisis.
Strong growth in Lenovo's key markets such as China helped the company post the second-biggest improvement among the top PC brands in the second quarter of this year, with shipments up 47% during the quarter, according to research firm Gartner.
This was better than rivals such as global leader Hewlett-Packard, Acer and Dell, who altogether took about 42% of all PCs shipped in the second quarter of 2010.
Lenovo had 10% of the global PC market in the second quarter, up from 8.2% a year earlier and narrowing the gap behind No 3 player Dell, which had 12.4% in the latest quarter, according to Gartner.
Lenovo has been trying to return to its roots as an emerging markets specialist after it struggled to integrate overseas-focused assets it acquired when it bought the IBM laptop PC business in 2005.
"China will continue to show moderate growth momentum, while the corporate replacement demand that has already shown some growth will gradually pick up in mature markets," the company said in a statement filed on the Hong Kong stock exchange.
Lenovo shares are down about 4% so far this year, having surged 130% last year, compared with a fall about 3% in main index. ' Reuters
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