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Last updated: May 21, 2009 5:25 pm

Lenovo predicts further gloom amid loss

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Lenovo, the world’s fourth-largest personal computer maker, swung to an annual loss in its 2008/2009 fiscal year and predicted more pain for the current year.

The weak results and bearish outlook underline that the company’s founders, who came back to run it in February, have no quick fix for its problems amid the global economic downturn.

Lenovo’s net loss widened to $264m in the three months ended March 31, from $96.7m in the preceding quarter.

The performance was worse than expected by analysts, hit by weak demand and restructuring charges.

For the latest fiscal year, Lenovo said it made a net loss of $226m in fiscal 2008/2009, against a $448m net profit in fiscal 2007/2008.

A restructuring programme, under which the company laid off 2,500 staff mostly outside China, cost it a total of $217m in the past fiscal year, and is expected to realise $300m in savings this year.

Lenovo replaced Bill Amelio, its American chief executive, with Yang Yuanqing, his predecessor, and called Liu Chuanzhi, co-founder, back in as chairman three months ago.

China remains the only bright spot for the company. Shipments there grew 4 per cent in the fiscal fourth quarter compared with the same period last year.

Shipments to Europe, the Middle East and Asia dropped 13 per cent, to the Americas they fell 19 per cent and to Asia-Pacific except China fell 32 per cent.

Lenovo expects this pattern to continue for the foreseeable future.

“We have seen a significant pick-up in demand in China since the end of the fiscal fourth quarter,” said Mr Yang.

But pointing to the 4 per cent contraction in the global PC market forecast by research company IDC, he warned that economic conditions in the rest of the world would continue to be very challenging this year.

China is currently the only geographic region where Lenovo makes an operating profit. But even here revenues dropped by 6.2 per cent year-on-year in the last quarter, and management said demand was largely driven by Beijing’s stimulus measures, which include generous subsidies for PC purchases.

Lenovo has been hit particularly hard by the global economic recession because of its disproportionate exposure to commercial customers.

After acquiring the PC arm of IBM in 2005, high-end computers sold to large enterprises make up the bulk of its revenues, and Lenovo has been slow to develop its con-sumer business outside China.

Mr Yang said there was no sign demand from corporate customers was returning.

Lenovo fell 3.9 per cent to close at HK$2.99 in Hong Kong before the company announced earnings.

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