Lenovo reports stronger profit, weaker margins

Lenovo Group reported a $55 million quarterly profit, driven by rising sales of personal computers and other products in China and other emerging markets.

The results are an improvement from a year earlier when the company reported a $16 million loss, and are the latest indication that spending on technology continues to revive globally.

Still, the profit was weaker than analysts had expected, and Lenovo shares fell overnight in Hong Kong, Bloomberg News reported.

Its American depositary receipts, which are similar to common shares for foreign companies, fell 40 cents today to $12.03. The ADRs are down 2 percent this year.

Like rivals Hewlett-Packard and Acer, Lenovo is selling more sub-$500 computers to win customers in emerging markets, diluting the profitability from its premium Thinkpad line of laptops. CEO Yang Yuanqing forecast more “downward pressure” on Lenovo’s profit margins because of the focus on low-priced products.

“The situation is unlikely to improve in the short term as the company continues to expand in the emerging markets,” said Galant Ng, who rates Lenovo shares “buy” at Taifook Securities Group in Hong Kong. The decline in Lenovo’s profit margin probably contributed to the drop in the stock today, he told Bloomberg.

Lenovo, which bought IBM's PC business in 2005, moved its headquarters to Morrisville, where it employs about 1,500 workers. The company also has a headquarters in Beijing and employs about 20,000 worldwide.

Global sales surged 50 percent from a year earlier to $5.1 billion, boosted by a 50 percent rise in Lenovo's home China market. Sales in other emerging markets doubled. Sales in the United States, Europe and other mature markets increased less but still racked up a 38.5 percent rise over a year earlier to $1.8 billion.
 
“Our performance was strong globally, Lenovo has a clear strategy when and where to focus on gaining share, and when and where to focus on maximizing profit, and we executed that strategy well,” Liu said in a statement.

The company said its share of the global PC market rose to 10.2 percent, its first double-digit figure to date.

Lenovo was hit hard by the global economic crisis, which prompted its core corporate customers to slash purchases. The company suffered three losing quarters before rebounding to profit in the three months ending last September.

Lenovo said in May it will sell a new desktop computer priced from $249, after the company began offering a laptop for $379 the previous month.

The company also expanded into wireless computing this year, launching its first smart phone and two Web-linked portable computers in January.

The Associated Press and Bloomberg News contributed to this report.