2nd UPDATE: Lenovo 4th Quarter Profit Up 59%; Outpaces Industry Growth

Date : 05/23/2012 @ 6:19AM
Source : Dow Jones News

2nd UPDATE: Lenovo 4th Quarter Profit Up 59%; Outpaces Industry Growth

BEIJING (Dow Jones)--Lenovo Group Ltd. (0992.HK) said Wednesday its net profit for the fiscal fourth quarter rose 59% from a year earlier as its personal computer sales outpaced industrywide sales, and the company is confident the growth momentum will continue as it is aggressively pursuing new opportunities in mobile devices.

Lenovo is China's largest PC maker by shipments and by far the fastest growing of the world's top PC makers, with its profitability outpacing rivals Dell Inc. (DELL) and Hewlett-Packard Co. (HPQ) as the Chinese firm has targeted fast-growing emerging markets while Dell and HP have revamped their businesses to move away from low-margin PC production. The global PC industry has taken a hit in recent years as users have increasingly traded their computers for smartphones and tablets.

Lenovo's net profit for the three months ended March 31 was US$67 million, up from US$42 million a year earlier. Revenue rose 54% to US$7.5 billion from US$4.9 billion.

In the last month, Lenovo's shares have fallen more than 7% due to concerns about the slowing global and Chinese economies, but Chief Executive Yang Yuanqing said a slowdown in China wouldn't have a major impact on Lenovo, which holds a 30% market share of the Chinese PC market.

"China is an emerging market. In front-line cities, the market is saturated, (so) we are aggressively developing tier 2 and tier 3 cities. Computer penetration in these cities is still low, so that's why there's still room for growth," he said.

The strong profit growth by Lenovo, which bought International Business Machines Corp.'s personal computer business in 2005, comes after Dell said Tuesday its profit fell 33% from a year earlier in the fiscal quarter ended May 4, missing forecasts. Hewlett-Packard Co. is also hurting, with analysts expecting the company to outline plans to lay off as many as 30,000 workers when it reports earnings Wednesday.

However, despite the rise in net profit, analysts still say they were concerned about falling margins after the company's gross margin fell to 10.8% in its fiscal fourth quarter from 12.3% a year earlier. Bernstein Research analyst Alberto Moel said that as Lenovo has grown in scale, profitability hasn't necessarily kept pace.

He also said the company is "way behind on profitability" in its mobile business, which raises questions about its plans to expand aggressively into the growing mobile device market.

Lenovo said that in its fiscal fourth quarter, PC shipments in China rose 22.7% from a year earlier, while those in other emerging markets grew 50%, with a strong showing in India and Russia. PC shipments in mature markets increased 81%.

The company declared a final dividend of HK$0.10 for its last fiscal year, compared with HK$0.05 a year earlier.

-By Paul Mozur, Dow Jones Newswires; 86 10 8400 7702; paul.mozur@dowjones.com

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