Lenovo on Thursday revealed a return to profit after three straight quarters of losses as the world’s fourth largest personal computer maker started to reap the rewards of cost cuts, a management reshuffle and continued growth in China.
The Chinese group, which until two years ago was neck-and-neck in terms of market share with its Taiwanese rival Acer, was the worst-hit of the world’s top PC makers by the economic downturn. This is mainly due to its over-reliance on corporate business, a legacy of its acquisition of IBM’s PC division in 2005.
Lenovo on Thursday said net earnings for the three months to the end of September rose 130 per cent to US$53m compared with the same period last year. However, sales in the second quarter dropped by 5.2 per cent year-on-year as the corporate business struggled to recover and consumers continued to buy low-cost computers.
Lenovo’s earnings outperformed market expectations and underscored the crucial role the group’s home market has played in rescuing it from the fall-out of the global financial crisis.
The turnround also provided some proof that a management reshuffle in February was starting to bear fruit.
This year Liu Chuanzhi, co-founder of the company, returned to the post of chairman and Yang Yuanqing, former chairman, took over as chief executive from Bill Amelio.
Lenovo said shipments in China jumped 28 per cent year-on-year. Shipments in other emerging markets rose 10 per cent and shipments in mature markets increased a mere 0.4 per cent, said Wong Wai-ming, chief financial officer.
The growing global weight of China and other big emerging markets helped Lenovo outgrow the overall PC market for the second straight quarter and increase its global market share to 8.9 per cent in the three months to September 30, according to research group IDC.
The bounce into profit should provide some relief for Lenovo, which has seen its market share dwindle, to the benefit of Acer.
Acer, which soared past Dell this year to become the world’s second-largest PC vendor, has been aided by its focus on consumer PCs and its quick entry into the low-cost laptop segment.
However, Lenovo said on Thursday its gross margin for the period had fallen to 10.6 per cent, from 13.1 per cent a year earlier, partly due to rising component costs and continued weak performance in the commercial computer segment.
Lenovo’s business in China was profitable, and operations in Europe returned to profitability in the September quarter. In North America, the company continues to lose money but losses narrowed.