Chinas Largesse Helps Lenovo – US-FOREX.US
HONG KONG -
Because half of the low-priced computers sold in China’s rural areas carried Lenovo’s label, the world’s fourth-largest computer maker managed to trim its losses in the quarter ending in June.
Lenovo
reported Thursday a net loss of 16 million for the three months through June, down from a profit of 110.5 million from the same period last year. The figure, the company’s third straight quarterly loss, was better than the market forecast of a 54 million loss, and was better than the previous quarter’s 264 million loss. Total revenue dropped 18% to 3.5 billion during the quarter from 4.2 billion in the previous year, as the average sales price continued falling. But the lower prices helped Lenovo increase unit sales and grow its market share in China. The computer maker said it was under severe pricing pressure from cut-throat competition amidst weak market demand. Lenovo had been relying on big orders from corporate clients since it acquired its laptop unit from IBM
in 2004. But with corporate sales falling as companies cut IT budgets, Lenovo shifted strategies, and has been focusing on individual clients in China and other emerging markets after a restructuring in April.
To carry out its expansion in China, Lenovo in February said good-bye to its well-regarded American CEO Bill Amelio, a former Dell
executive who led a broad restructuring of Lenovo’s worldwide operations. His replacement was Yang Yuanqing.
Thanks to the restructuring and the new business strategy, China was the only area that contributed positive earnings to the group’s consolidated account in the April-June quarter. The Chinese market accounted for approximately 48% of Lenovo’s group sales, and the personal computer market in China posted 14% year-on-year growth during the quarter, Lenovo announced Thursday. Lenovo’s unit shipments to China grew 15% in the quarter and its market share rose by 0.3 percentage points to about 28.6% based on industry estimates. Lenovo is the top seller in China. Lenovo’s growth in China was helped by the Chinese government’s stimulus package. In early January, the central government revealed details of its 4 trillion yuan hand-out. Under a subsidy program aimed at boosting consumption in rural districts, the government rolled out a 13% subsidy for farmers in 12 provinces who buy home appliances such as TVs, refrigerators and personal computers. Lenovo has been the biggest beneficiary of the four authorized computer brands entitled to the subsidies. According to a market survey, almost half of all computers sold to rural farmers in the first six months of this year were from Lenovo. Even though the worldwide personal computer market showed signs of improvement, Lenovo forecast the operating environment would continue to be challenging for the 2009/2010 fiscal year because the global economy remains uncertain and corporate customers are still conservative about PC spending. “In addition, the ongoing shift of product mix toward entry-level PCs also exerts pressure on Lenovo’s operation,” Lenovo said in a statement. The Chinese computer maker pledged to continue to invest in the China market to further expand its leadership and profitability. “The market offers good growth opportunities for the Group with the government’s economic stimulus program, rural PC subsidy program, urban PC upgrade program, 3G adoption, etc. The Group will enhance its distribution network to cater for these new growth drivers,” it added.
Thomson Reuters contributed to this article.