Lenovo Group Net Income Rises on Office Computer, Emerging Market Sales

Lenovo Group Ltd. (992), China’s biggest maker of personal computers, reported first-quarter profit almost doubled, beating analysts’ estimates, after it boosted sales in emerging markets and increased shipments to businesses.

Net income climbed to $108.8 million in the three months ended June 30, or 1.08 cents a share, from $54.9 million, or 0.54 cents, a year earlier, Lenovo said today in a statement. Profit exceeded the $84 million average of seven analysts’ estimates compiled by Bloomberg. Revenue rose 15 percent to $5.92 billion.

The maker of Thinkpad laptops increased sales in China, India and Brazil, as well as the U.S., where spending by companies to replace aging computers is helping offset slowing demand from consumers. Still, Lenovo shares fell in Hong Kong trading today as analysts questioned whether the Chinese company can maintain its growth overseas amid concerns about a global economic slowdown.

“They have done well so far, but it’s whether they can sustain this for the rest of the year that’s the question mark,” said Lai Voon San, who rates Lenovo shares “sell” at MF Global Equities in Hong Kong. “If you look at the way the world is, and the way the markets are, there is some room for caution.”

Lenovo fell 6.3 percent to HK$4.59 as of 2:17 p.m. in Hong Kong trading, reversing an earlier gain today. The MSCI Asia Pacific Index fell 1.3 percent.

Revenue in Lenovo’s mature-markets division, which includes its operations in the U.S. and Western Europe, rose 13 percent to $2.05 billion. Operating profit in the division more than tripled to $76 million.

“The main swing factor in the results was the mature market division -- there was a massive improvement in profitability there,” MF Global’s Lai said.

Lenovo doesn’t see any sign that corporate clients are cutting back technology spending, Chief Executive Officer Yang Yuanqing said in a conference call today. Purchases by companies to replace older machines will be sustained throughout this year, Chief Operating Officer Rory Read said.

“The market will be saying: yes the company did very well, but where’s the growth going to come from now,” said Jean-Louis Lafayeedney, who rates Lenovo shares “buy” at JI Asia in Hong Kong.

Dell Inc. (DELL), the world’s second-biggest PC maker, cut its full-year revenue forecast this week, citing a “more uncertain demand environment.” Government customers have delayed spending, the Round Rock, Texas-based company said.

Global industry leader Hewlett-Packard Co. (HPQ) accounted for 17.5 percent of the global PC market last quarter, rising from 17.4 percent a year earlier, according to research company Gartner Inc. Lenovo, the third biggest, increased its market share to 12 percent from 10 percent, behind Dell, which gained to 12.5 percent from 12.3 percent, according to Gartner.

China Sales Rise

The Chinese company, which bought the PC division of International Business Machines Corp. (IBM) in 2005, said revenue from China rose 13 percent to $2.84 billion, or 48 percent of the company’s total. Sales in its emerging-market division, which includes India, Brazil and Russia, rose 26 percent to $1.04 billion.

Lenovo sold about 80,000 of its LePad tablet computers in China last quarter, Yang said today. The company aims to increase its share of the tablet market in the country to 20 percent by the end of the fiscal year, he said.

“Frankly, I don’t think they will get to 20 percent,” JI Asia’s Lafayeedney said. “It’s hard to see how they can compete with Apple.”

About 1.07 million Apple Inc. iPads were sold in China last quarter, according to estimates by research company Analysys International.

The iPad is “dominating” the Chinese market at present, Yang said today. Lenovo is “ramping up” sales of its tablets in China, he said, without elaborating.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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