Lenovo reports flat 3rd Quarter profit
By Vincent Lam (China Daily)
Updated: 2005-02-05 10:18

Lenovo Group Ltd, a leading IT enterprise in China, announced profit was flat in its fiscal third quarter financial report on Friday, in line with expectations.

The group's operating profits climbed to HK$370 million (US$47.4 million) - up 19 per cent from HK$311 million (US$39.87 million) over the same period last year as revenue for its core PC business rose 4 per cent and its earnings per share (Basic) rose 4.37 cents from 4.35 cents, up 0.5 per cent.

The group's net profit in the third quarter stood at HK$327 million (US$41.9 million), up 0.6 per cent compared with HK$325 million (US$41.67 million) over the same period last year because of stiff competition and slowing growth in its home market for its PC business.

The net profit for the first three quarters in this fiscal year reached HK$954 million (US$122 million).

The company's gross margin also dropped to 13.84 per cent from 14.08 per cent, down 0.3 per cent.

The turnover slipped to HK$6.309 billion (US$808.85 million) from HK$6.552 billion (US$840 million), down 3.7 per cent.

PC business including corporate IT and consumer IT accounted for 92.8 per cent of turnover, while handheld devices only accounted for 6.6 per cent.

The total Lenovo PC shipment increased by 19.1 per cent with its notebook shipment rose 28.1 per cent while its server shipment dropped 17 per cent.

Yang Yuanqing, the CEO of Lenovo, said: "The group will focus on the development of core business and strategic new business for its future development."

According to IDC, the proportion of non-core business in total turnover reduced from 6.1 per cent to 0.6 per cent in the third quarter of this year over the period of the last year.

Furthermore, the group will be determined to enhance operational efficiency as the rate of operating expenses of core business dropped to HK$52 million (US$6.67 million), down 1.2 per cent from 8.9 per cent to 6.9 per cent. Its cash cycle also dropped from 14.42 to 0.34 days in the third quarter of this year over the same period of last year, Yang said.

As far to the takeover deal of IBM's PC business is concerned, Yang said on Friday at a press conference: "Lenovo also is upbeat to see the approval from the United States to buy IBM's PC business."

He said that he was confident the group's first step of internationalization to acquire IBM's PC business would gain US approval in the second quarter of this year, citing that "we haven't received any signs or notification of disapproval" so far.

On December 8, Lenovo and IBM announced a definitive agreement for Lenovo to acquire IBM's global PC business at US$1.25 billion on IBM's desktop marketing networks and notebook computer businesses, as well as its Pc-related R&D centres, manufacturing plants, global marketing networks and service centres in order to reduce its dependence on a home market nearing saturation levels in major cities.

The deal also includes the use of the IBM brand without further payment for five years, and permanent ownership of the globally known "Think" trademark.

IBM will hold 18.9 per cent of Lenovo's total shares, becoming a long-term strategic partner of Lenovo.

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