Chinese computer maker Lenovo posted a better-than-expected 6 per cent rise in quarterly profit today after including for the first time the struggling PC business bought in May from IBM.
The company reported a net profit of HK$357 million for the quarter through June, compared with a profit of HK$336.8 million in the same period a year earlier, which did not include the IBM assets.
Basic earnings per share fell by 8 per cent to 4.12 Hong Kong cents as a result of dilution from issuing new shares to pay for the IBM deal.
First-quarter turnover more than tripled to HK$19.6 billion from HK$5.9 billion a year earlier, as Lenovo added IBM's sprawling global sales network, complementing its own position as China's dominant PC seller.
Its gross margins expanded to 15.3 per cent, from 13.75 percent a year earlier. Overall PC sales in China are expected to grow 13 per cent from the 15.8 million units sold in 2004, market research firm IDC has said. But with Lenovo controlling 26 per cent of the market last year - 32 per cent including IBM's share - most analysts believe the company is unlikely to boost its dominance at home and might even lose share to global rivals Dell and Hewlett-Packard.
In Europe, the Middle East and Africa, Lenovo earned operating profit of HK$40 million on turnover of HK$3.7 billion in May and June, while its Asia-Pacific business outside of Greater China lost HK$29 million on an operating basis, on sales of HK$2.5 billion during the two months.
The purchase of IBM's personal computer business made Lenovo the world's third-largest PC maker, behind only Dell and Hewlett-Packard, but some analysts are worried about the firm's ability to turn around the IBM assets.
Lenovo said the former IBM business was profitable, and that the acquisition was already paying off, citing growth that outpaced the industry in the big emerging markets of China, India, Russia and Brazil. "We are generating the anticipated benefits of the acquisition quickly, ahead of schedule. Customers are embracing the new Lenovo," the new chief executive, Stephen Ward, said in a statement.
"Lenovo outpaced the PC industry in emerging markets, and we are focused on driving similar momentum in mature markets." The firm said it expects the merger to generate cost savings of about $200 million a year.
Lenovo controls more than a quarter of China's PC market, the world's second largest after the United States, and its landmark deal to acquire IBM's assets is part of a broader move by Chinese companies to look overseas for new growth opportunities.