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Cost-cutting will be the biggest challenge for Lenovo in integrating IBM's personal-computer division into its operation, the Chinese PC-maker said on Wednesday, as it strives to combat stiff competition and falling sales.

Lenovo, now the world's third-largest PC maker, revealed an unexpected drop in sales in its fourth quarter to the end of March after turnover at its core corporate IT division fell 12 per cent in the period the biggest decrease in many years.

Foreign PC manufacturers including Dell and Hewlett-Packard are gaining market share in China, especially in the corporate sector. Globally, the average selling price of PCs dropped 13.8 per cent last year, Lenovo said on Wednesday, compared with a 12 per cent decline in China.

Yang Yuanqing, chairman, said the price drop was due to “irrational competition”.

“We think the competition will be more rational this year as a lot of our competitors are surviving on very thin margins,” Mr Yang said.

The company last December took a significant step towards fulfilling its goal of expanding beyond China when it announced it would buy IBM's struggling PC business for US$1.75bn.

But Lenovo's share price has fallen about 10 percent since the deal was announced. Mr Yang said on Wednesday one of the company's main aims in integrating the two businesses would be to reduce costs in procurement, supply-chain management and sales networks.

In the quarter to end-March, Lenovo's turnover dropped 6.4 per cent to HK$4.7bn, while operating profit fell 9.4 per cent to HK$153.5m.

For the full year, sales dropped 2.7 per cent to HK$22.55bn, operating profit rose 5.8 per cent to HK$979.6m and net profit increased 6.4 per cent to HK$1.12bn.

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