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Lenovo, the world's third-largest personal computer (PC) maker, needs more time to turn around its loss-making PC business acquired from IBM, analysts said as the company released its latest results.

 

The PC producer, which manufactures the biggest number of PCs after Dell and Hewlett-Packard (HP), posted an 85 percent slump in its net profit for the past fiscal year ended March 31, missing earlier market estimations.

 

Declines in IBM's former markets were also reported.

 

The cost of restructuring former IBM assets, amounting to as much as HK$543 million (US$70 million), was attributed to its lacklustre performance.

 

"We are trying to streamline the business and build brandnames in international markets," company Chairman Yang Yuanqing told reporters in Hong Kong yesterday. "It demands big money and the returns will be visible after three to five quarters."

 

Lenovo's net profit stood at HK$173.24 million (US$22.2 million) in 2005, a sharp drop from HK$1.12 billion (US$143.6 million) in the previous year, although its revenue rose more than four-fold to HK$103.6 billion (US$13.3 billion).

 

"That (rising revenue versus plummeting profit) reflects the fact that Lenovo's working hard to streamline the acquired assets and it seems that the cost to do so is quite huge," said Fu Hung-man, dealing director at Polaris Securities.

 

Shipping PCs to 66 countries and regions, Lenovo saw declines in its overseas market businesses, which were mainly inherited from IBM.

 

Fiercer competition from global players such as Dell, HP, Toshiba and Sony dragged Lenovo into price wars, tightening its profit margin.

 

The Chinese market, where it has a traditional stronghold and gained 36.7 percent of its total revenue, was the only good news, with big rises in sales.

 

Lenovo grabbed news headlines around the world when it acquired IBM's PC business for US$1.25 billion last May, the largest acquisition a mainland company had ever launched at that stage.

 

After the results were made available to the market yesterday afternoon, the company's Hong Kong shares dropped nearly 10 percent before rallying somewhat to end at HK$2.45 (31.4 US cents).

 

It reflected a 3.92 percent slide compared with its closing price on Wednesday. Lenovo shares fell 17.5 percent from January to March, lagging behind the benchmark Hang Seng Index.

 

(China Daily May 26, 2006)