Lenovo Group - the world's third-largest computer maker - yesterday beat expectations by squeezing into the black in the first quarter as it booked a lower than anticipated cost for turning around the loss-making PC business it bought from IBM.
Lenovo, one of a handful of Chinese firms trying to forge a global brand by investing abroad, has been coping with expenses arising from its $1.25 billion (£668.4 million) purchase of IBM's PC arm in 2005 and stiff competition from bigger rivals Dell and Hewlett-Packard.
Analysts said Lenovo's surprisingly strong notebook sales - shipments leapt 23 per cent in its fiscal first quarter ended June, for revenue of $1.8 billion (£967.7 million) - boded well for the rest of the year.
China's largest maker of personal computers unveiled a net profit of $5 million (£2.67 million) in the quarter, d own from $46 million (£24.5 million) in the same period a year earlier but trouncing a forecast for a loss of $4.9 million, (£2.62 million) according to a poll of five analysts.
Analysts hold out hope for more improvement over the year, partly because of a traditionally stronger second half but also as Lenovo gets a firmer grip on an IBM business that vies with Sony and Toshiba in Asia.
Lenovo's global PC market share in the year's second calendar quarter - equivalent to Lenovo's fiscal first - climbed to 7.7 per cent from 6.4 pe rcent in the first quarter and 7.5 per cent a year ago, according to consultancy IDC.
In Asia excluding Greater China, shipments inched three per cent higher, versus a five per cent slip in the fourth quarter. But underscoring the region's hyper-competitivess, Lenovo slipped into the red with an operating loss of about $3 million (£1.6 million), according to a company presentation.
Lenovo had drawn scepticism for buying a business that IBM had failed to resuscitate, though it helped the firm vault onto a global stage.
Founded in 1984 by 11 scientists with $25,000 in seed money, it now hopes to transform itself into a notebook powerhouse by twinning expertise in lower-end PCs with the strength in laptops it bought along with Big Blue's PC assets.
"It's on the right track to grow their business in the future, as notebook PCs will replace desktops," said Mark Po, an analyst at UOB Kay Hian.
He said he was surprised Lenovo had not incurred a larger restructuring cost.
"It is a bit low. The company will book more restructuring charges over the next few quarters."
Lenovo's results come weeks after Dell sent shockwaves through the industry by warning quarterly earnings would fall nearly a third shy of forecasts. Yet on Thursday, Lenovo rival Acer gave a bullish prediction that its PC shipments would leap 20 per cent in 2006.
Shares of Lenovo - the worst performer in Hong Kong's blue-chip Hang Seng Index this year - closed Thursday down two per cent. They fell 13 per cent from April to June, underperforming the Hang Seng's three per cent gain.
Lenovo now trades at about 19.4 times prospective 2006 earnings, making it pricier than Hewlett-Packard's 15.2, but slightly lower than Dell's 19.7, according to estimates. In the first quarter, Lenovo kept up a blistering 30 per cent pace of shipments growth in its home region, where it controls a commanding third of the market.
That anchored a less stellar global performance. Shipments in Europe, the Middle East and Africa slid 12 per cent, while sales in the Americas climbed six per cent.
Lenovo is spending about $100 million (£53.4 million) to overhaul its operations but expects to chalk up savings of up to $100 million this year and $250 million (£133.6 million) annually over coming years.
In the fiscal first quarter, Lenovo booked a restructuring charge of $19 million (£10.1 million).
