IBM buy sees Lenovo slump 85%
By Zhang Jin and Lillian Liu (China Daily)
Updated: 2006-05-26 08:47
Lenovo, the world's third-largest personal computer (PC) maker, needs more
time to turn around its loss-making PC business acquired from IBM, analysts said
as the company released its latest results.
The PC producer, which
manufactures the biggest number of PCs after Dell and Hewlett-Packard (HP),
posted an 85 per cent slump in its net profit for the past fiscal year ended
March 31, missing earlier market estimations.
Declines in IBM's former
markets were also reported.
The cost of restructuring former IBM assets,
amounting to as much as HK$543 million (US$70 million), was attributed to its
lacklustre performance.
"We are trying to streamline the business and
build brandnames in international markets," company Chairman Yang Yuanqing told
reporters in Hong Kong yesterday. "It demands big money and the returns
will be visible after three to five quarters."
Lenovo's net profit stood at
HK$173.24 million (US$22.2 million) in 2005, a sharp drop from HK$1.12 billion
(US$143.6 million) in the previous year, although its revenue rose more than
four-fold to HK$103.6 billion (US$13.3 billion).
"That (rising revenue
versus plummeting profit) reflects the fact that Lenovo's working hard to
streamline the acquired assets and it seems that the cost to do so is
quite huge," said Fu Hung-man, dealing director at Polaris
Securities.
Shipping PCs to 66 countries and regions, Lenovo saw declines
in its overseas market businesses, which were mainly inherited from IBM.
Fiercer competition from global players such as Dell, HP, Toshiba and
Sony dragged Lenovo into price wars, tightening its profit margin.
The
Chinese market, where it has a traditional stronghold and gained 36.7 per cent
of its total revenue, was the only good news, with big rises in
sales.
Lenovo grabbed news headlines around the world when it acquired
IBM's PC business for US$1.25 billion last May, the largest acquisition a
mainland company had ever launched at that stage.
After the results were
made available to the market yesterday afternoon, the company's Hong Kong shares
dropped nearly 10 per cent before rallying somewhat to end at HK$2.45 (31.4 US
cents).
It reflected a 3.92 per cent slide compared with its closing
price on Wednesday. Lenovo shares fell 17.5 per cent from January to March,
lagging behind the benchmark Hang Seng Index.
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