Update: Lenovo Q1 results shine, after adding IBM deal

Lenovo Group Ltd. posted better than expected earnings for its first quarter ending June 30, adding figures from the PC business it acquired from IBM Corp. in May for the first time.

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In an announcement highly anticipated because it was the first peek at how Lenovo's US$1.25 billion acquisition was turning out, the company said Wednesday its net profit increased 6 percent compared to the same time last year to HK$357 million (US$45.9 million as of June 30, the last day of the period being reported). The addition of IBM's PC business helped revenue more than triple to HK$19.6 billion.

Lenovo, which is now the world's third biggest PC maker after the IBM deal, said its sales increased in key emerging markets like Brazil, Russia, India and China, while the addition of IBM's PC division added immediately to its sales growth through record high shipments. Last year, during the same three-month reporting period and minus the IBM acquisition, Lenovo reported revenue of just HK$5.88 billion.

The results beat expectations. Financial analysts had predicted Lenovo would report a net profit of HK$260 million on revenue of HK$19 billion for the first quarter, according to a survey by Bloomberg News.

There were fears the company might lose business from U.S. companies accustomed to working with IBM. Indeed, earlier this year, market researcher Gartner Inc. said Lenovo's shipments to the U.S. fell 9 percent during the April-June period as PC buyers at large corporations held back on purchases from the Chinese company.

But Lenovo showed resilience during the three month period. The company's PC and mobile phone businesses in China, the Americas and Europe were all profitable, it said. The PC business drew the lion's share of the company's revenue, at HK$18.3 billion, and laptop sales outpaced desktop sales, the company said.

Lenovo made "solid progress" in its first 60 days of business after the acquisition was finalized, the company said, crediting some products, including the new ThinkPad X41 Tablet, the Lenovo Yangtian desktop and the ET960 Smartphone, with giving it a competitive advantage.

Most of Lenovo's revenue -- over 40 percent -- came from the Greater China region during its first quarter, while 28 percent of revenue was from the Americas, Lenovo said. Greater China normally refers to China, Hong Kong and Taiwan.

The company touted its ability to ensure profitability in the newly acquired IBM business, and said people should expect better cost competitiveness, more products, increased brand name development, added investment in emerging markets and stronger sales execution in its fiscal 2006, which has already started.

Lenovo will also continue to integrate IBM's PC division into its fold. Only eight of 16 major functions have been integrated so far, including procurement, marketing, finance, accounting and communications, Lenovo said. The company sees potential to streamline four additional areas, its manufacturing operations, product lines, information technology and services, it said.

Growth for Lenovo in 2006 will be driven by notebook computer sales and its strength in emerging markets, as well as new products and operational performance, Lenovo said.

Lenovo jumped to third place with a 7.6 percent share of global PC shipments during the April-June timeframe, after its purchase of IBM's PC business was included in its totals, according to IDC. Dell Inc. ranked first with 19.3 percent of global PC shipments, while Hewlett-Packard Co. was second with a 15.6 percent.