Lex: Lenovo

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Fired up, perhaps, by the rapid innovation required in its core business, Lenovo, the Chinese computer group, seems keen to break new ground in accounting as well.

Reporting earnings “excluding investments in globalisation” is surely a first though in this international world, such a calculation may rapidly become a benchmark.

Unfortunately, whether taken before or after globalisation expenses which, rather mundanely, turn out to be the costs of becoming a 2008 Olympics sponsor Lenovo's results are poor. Underlying sales grew 1.6 per cent last year, as falling prices wiped out the 20 per cent growth in Chinese personal computer shipments. Operating profits in the final quarter to March fell 24 per cent.

Lenovo's revenues this year will be transformed by the $1.75bn purchase of IBM's personal computer unit. But profits are unlikely to grow much, since the IBM operations are barely profitable. And cost cuts will be limited since IBM already manufactures on the mainland. More and more Chinese companies are snapping up troubled foreign brands.

But they have yet to prove they can turn round a branded, international consumer goods business. TCL, the pioneer in this respect, has seen its shares fall a third in 2005 due to integration difficulties. As with Lenovo, the suspicion is that managements often buy abroad to diversify away from a competitive market at home. That may be innovative, but not necessarily successful.

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