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Lenovo, China's largest personal computer maker, on Wednesday reported a stronger-than-expected rise in net profit for the three months to June as the company's newly acquired IBM PC operations turned profitable.

The company said it had achieved cost savings of US$10m in May and June after it completed the acquisition of IBM's PC unit, and it expected integration of the two companies to generate savings of US$200m a year.

Lenovo, the world's third largest PC maker after the acquisition, said net profit rose 6 per cent to HK$357m (US$46m) in its first fiscal quarter this year, compared with HK$337m in the same period a year earlier.

Revenue jumped 234 per cent to HK$19.6bn from HK$5.88bn because of the inclusion of two months of sales from the IBM business and strong growth in China. Lenovo's inventory level also rose significantly after the merger. Gross margin rose to 15.33 per cent from 13.75 per cent in the first quarter of 2004. However, net margin fell sharply to 1.82 per cent from 5.73 per cent.

But Lenovo on Wednesday did not provide any pro-forma figures for the combined business in the previous financial year which would have allowed investors to have a better glimpse of how profitable the IBM business had become.

Lenovo also admitted it had lost customers to rival PC makers. The company said it shipped 825,000 computers to clients in the Americas in the three months to June, 4 per cent fewer than a year earlier.

But it said it had interviewed 5,000 global customers and 93 to 95 per cent of them were “very comfortable” or “neutral” about continuing their relationship with the company following the IBM PC merger.

“It's unrealistic if we say we have not lost any customers. But we are satisfied with our current situation and we are losing fewer customers than any merger in this industry,” said Mr Yang.

In Greater China, which now accounts for 40 per cent of Lenovo's turnover, revenues rose 35 per cent because of strong growth in sales of low-end computers and notebooks in China. Operating profit jumped 55 per cent to HK$463m.

The company said it had been winning customers, especially large corporates, in China, where its market share rose to 34 per cent from 31.4 per cent a year earlier. Lenovo's three-year-old handset business also turned profitable in the quarter.

Copyright The Financial Times Limited 2017. All rights reserved.
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