Nov. 1 (Bloomberg) -- Lenovo Group Ltd., the world's third- biggest computer maker, may report a 49 percent increase in second-quarter profit, helped by the acquisition of International Business Machines Corp.'s PC business.

Net income for the fiscal three months ended Sept. 30 probably climbed to HK$433 million ($56 million) from HK$290 million a year earlier, according to the median forecast of five analysts surveyed by Bloomberg News. Purchase, New York-based Lenovo will present earnings today at 4:15 p.m. in Hong Kong.

Chief Executive Stephen Ward says the $1.25 billion takeover of the IBM unit by China's biggest computer maker will generate annual cost savings of up to $200 million as Lenovo uses size to negotiate lower prices for components and parts. Ward, who ran the IBM business before the acquisition, in August said savings are coming quicker than initially expected.

``It's all about how well the cost savings schedule is going,'' said Marvin Lo, an analyst at BNP Paribas Peregine in Hong Kong with an ``outperform'' rating on the stock. ``Even a minor deviation from plan could make a big difference for the bottom line.''

Second-quarter sales at Lenovo probably jumped almost fivefold to HK$27.1 billion, lifted by the IBM unit, the Bloomberg Survey showed. It will be the first quarter where results from the IBM business are fully reflected in earnings.

Shares of Hong Kong-listed Lenovo, which was based in Beijing before the IBM purchase, have jumped 57 percent since the deal was completed April 30, pushed higher by rising computer demand and expectations that Ward will manage to boost profit. In the same time, Hong Kong's benchmark Hang Seng Index has gained 3.5 percent.

Dell, Hewlett-Packard

Lenovo is combining its own computer products, research and purchasing units with those of the IBM business as part of its plan to reduce costs, the company said Sept. 30.

Following the takeover, Lenovo ranks behind Dell Inc. and Hewlett-Packard Co. in the global computer market, and ahead of Acer Inc. Acer President Gianfranco Lanci on Oct. 28 said he aims to overtake Lenovo within nine months.

Worldwide PC shipments will rise 14.1 percent in 2005, mainly on higher demand for low-cost PCs and notebooks, market researcher IDC Corp. forecast last month, revising its original estimate of 11.4 percent growth. Shipments jumped 17 percent in the third quarter, IDC said.

Lenovo had 7.7 percent of the global market in the quarter, down from a combined 8 percent for Lenovo and IBM's PC business a year earlier, according to the IDC report. Dell's market share was at 18 percent, IDC said.

China Strength

Acer is putting pressure on Lenovo in China, Lenovo's home market, by releasing a raft of low-priced laptops and desktops, said Lo of BNP Paribas. The Taipei-based company has also been successful in Europe, Lo said.

Even so, Lenovo's strength in China, where it has more than triple the market share of its nearest competitor, should enable it to grow faster than the industry as a whole, wrote Credit Suisse First Boston analyst Jeannie Cheung in an Oct. 25 note to clients.

Average wages in China have more than doubled in the past five years, and the economy is on pace for its third straight year of at least 9 percent economic expansion. Lenovo had 34 percent of the market in the second quarter and aims to add 1 percentage point by year-end, Chief Operating Officer Liu Jun said Sept. 28.

``Lenovo should benefit from a robust China consumption story, and the potentially strong turnaround of the IBM'' unit, Cheung said in her note, rating the stock ``outperform.''

In the U.S., the world's largest PC market, Lenovo has moved to recapture market share it lost during the second quarter, when it underestimated demand and wasn't able to produce enough PCs. Ward in August said he would ``move very quickly'' to recapture lost market share in the U.S.

To contact the reporters for this story: Philip Lagerkranser in Hong Kong at lagerkranser@bloomberg.net

Last Updated: October 31, 2005 11:01 EST