November 8, 2012 8:17 am

Lenovo shakes off PC industry gloom

Lenovo is confident it can improve its profit margins further despite the gloom blanketing the global personal computer industry, as it reported strong growth in its interim profits, which beat market expectations.

The Chinese PC maker on Thursday said second-quarter sales were up 11 per cent from a year ago, a sharp slowdown compared with a 35 per cent growth in the first quarter but which came against the backdrop of a decline in global PC sales, analysts said.

Lenovo said it increased its share of the global PC market by 0.6 percentage points in the three months to September, to 15.6 per cent, meaning it still trailed market-leader Hewlett-Packard at that point. However, market research in October suggested Lenovo may have overtaken HP in the third quarter as the world’s biggest PC maker by shipments.

The company is trying to establish itself as a top PC maker just as the industry is facing a slump in demand amid weak economic conditions and the growing encroachment of mobile devices.

Yang Yuanqing, chairman and chief executive, said the company aimed to lift pre-tax profit margin by at least one percentage point in three years’ time, with much of the improvement coming from the mobile devices division.

The brand was beginning to gain traction in the Chinese mobile market, said Jiong Shao, head of China strategy at Macquarie Securities. “Their first-generation smart phones were just too expensive but these days, they are selling much cheaper devices, which go down well with consumers because Lenovo is such a well-known brand,” he said. Lenovo grew its smartphone shipment by more than 20 times from the same period last year and is now the second-biggest brand by market share in China, its main market, trailing leader Samsung by just 1.1 percentage points as of September.

But mobile devices still only made up 8 per cent of its revenue and the company’s outlook would be decided by how well it survived the continuing downturn in PC demand, Mr Shao said.

Profit attributable to shareholders was $303m, up 20 per cent from the same period a year ago, while operating margin improved 0.2 percentage points to 2.3 per cent.

Lenovo on Thursday said it was sitting on $3.6bn in net cash, with which it plans to make further acquisitions after buying Brazilian electronics manufacturer CCE in September. Good fits would be PC makers in emerging markets and businesses servicing the enterprise IT market, according to Mr Shao.

Lenovo shares were down 2.6 per cent on Thursday to HK$6.58, which Wei Chen, technology analyst at Citigroup in Taipei, attributed to poor overall market sentiment. The stock had gained 26 per cent since the start of the year.

This article has been amended to complete Wei Chen’s name and title.

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