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Lenovo, the Chinese personal computer maker that acquired IBM's struggling PC division last month, aims to return the business to profit in one year through cost-cutting.

Liu Chuanzhi, chairman and founder of Legend Holdings, Lenovo's parent group, also moved to reassure investors the purchase was the right decision for the Chinese company, saying IBM's higher-margin business would lift Lenovo's profitability in the longer term.

Gross profit margin at IBM was 24 per cent compared with Lenovo's 14 per cent, said Mr Liu, formerly Lenovo's chairman and now an executive director.

China's largest PC supplier announced its US$1.75bn bid for IBM's PC unit last December as part of efforts to expand beyond China, where it faces stiff competition from foreign vendors such as Dell and Hewlett-Packard.

However, its stock has fallen about 15 per cent since, amid doubts over Lenovo's ability to turn around the unprofitable business, which is three times its size.

Mr Liu said on Tuesday IBM's high costs, especially amortisation charges, had pushed it into the red. But he expected the unit to start contributing to group profit next year as integration between the two operations had been smooth.

“There is more room for cost-cutting than we had expected,” Mr Liu said, adding that the group would study reducing costs in research and development.

Mr Liu also said IBM's workforce had remained stable since it completed the acquisition in early May and the company was not planning any job cuts.

Lenovo, now the world's third largest PC maker, moved its headquarters from Beijing to New York following the acquisition. It has also retained most of IBM's management staff.

Yang Yuanqing, Lenovo's chairman, said last week one of the company's goals in the next five years was to boost its market share “significantly”. Lenovo and IBM accounted for about 7 per cent of global PC shipments in the first quarter ofthis year.

Lenovo reported an unexpected drop in sales in its fiscal fourth quarter to end-March last week as turnover at its core corporate IT division fell 12 per cent in the period.

Selling prices of Lenovo's computers in China also dropped faster than the market average last year due to heated competition.

Lenovo shares ended flat at HK$2.275 despite Mr Liu's comments.

Copyright The Financial Times Limited 2017. All rights reserved.
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