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Lenovo profit nosedives amid economic woe

By Wang Xing (China Daily)
Updated: 2008-11-08 09:36

The world's fourth largest computer maker Lenovo Group on Friday said its profit slumped 78 percent in the past quarter as the global economic slowdown foiled demands for desktop and notebook computers.

Lenovo's net income for the three months ending September dropped to $23 million, from $105 million in the same period last year, the company said. Sales revenue grew 0.4 percent to $4.3 billion.

"Due to the global economic downturn, and a shortfall in the execution of our strategic plan, Lenovo's performance in the second quarter did not meet our expectations," said Lenovo Chairman Yang Yuanqing. He said the company would optimize the operational structure and reduce costs to improve efficiency.

Lenovo became the world's third largest PC vendor when it acquired IBM's PC-making unit in 2005. Since then, the company has maintained rapid growth in both sales and profit.

But weakened demand from both the commercial and public sectors as well as a slowing Chinese market battered Lenovo's growth in the latest quarter, dragging its global shipment growth down to 7.4 percent, lower than the industry average.

Yang said Lenovo would focus on expanding its business in key market segments such as the emerging markets and notebooks sector in the future, adding that the company would still look for acquisition opportunities despite the gloomy market environment.

Rumors have circulated that Lenovo has entered talks with Japna's Fujitsu over the possible acquisition of Fujitsu-Siemens' PC division. However, Yang denied the rumours on Friday.

The financial turmoil in the United States has slowed global PC demand as enterprises and individuals canceled or postponed purchasing plans. According to research firm IDC, worldwide shipments in the third quarter of 2008 were up 15.8 percent year-on-year, lower than earlier forecast.

In China, the growth is also slowing down, as the Olympic Games and several natural disasters such as the Sichuan earthquake and the snowstorms disrupted domestic demands for desktops and notebooks in recent quarters.

Simon Ye, an analyst from research firm Gartner, said China could maintain double-digit growth this year, yet there are a lot of uncertainties.

"Many people are not sure whether the worst time has passed in the United States, so they are extremely cautious in making purchase decisions," he said.

The United States has been Lenovo's second largest market since it acquired IBM's PC business.