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Lenovo hit by rejig cost, flat PC sales

By Wang Xing (China Daily)
Updated: 2009-05-22 08:12

Chinese computer maker Lenovo Group yesterday posted a second consecutive quarterly loss due to restructuring costs and flat worldwide PC sales, dragging its whole year earnings into the red.

But the company said that keeping the dominant position in China will help it get through the current difficult period.

The world's fourth largest PC vendor recorded a loss of $264 million for its fiscal fourth quarter ended March, following a $96.7 million loss for the previous quarter. Its worldwide PC shipments declined 8.2 percent year over year due to sluggish demand from corporate consumers.

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"The past two quarters have been a particularly challenging time in our industry worldwide, and we took some significant steps to get our business back on the right path," said Lenovo Chairman Liu Chuanzhi. But he reaffirmed that Lenovo "can make significant progress" against competitors a year later by focusing on emerging markets.

Worldwide PC shipments fell 7 percent in the first three months of 2009 from a year earlier, according to research firm IDC.

Hewlett-Packard, the world's largest personal computer maker, reported a 17 percent decline in profit in the second quarter of this year. The second biggest player Dell, which is set to post its second quarter result next week, is also expected to report business plunge.

Yang Yuanqing, chief executive of Lenovo, said the company's commercial business, mainly the expansive ThinkPad and ThinkCentre products that it acquired from IBM in 2005, have been severely impacted as large corporate companies reduce IT investments amid the financial crisis.

He said China is Lenovo's most important market to tide over the current downturn.

According to the company, Lenovo's shipments in Greater China increased 4.4 percent in the quarter, compared with an industry decrease of 0.1 percent. Its market share increased 1.1 point to 26.7 percent.

Yang said the Chinese government's 4-trillion-yuan ($585 billion) economic stimulus plan and subsidy program for rural PC buyers, as well as domestic telecom carriers' aggressive push for netbooks, is expected help China get out of the current economic slowdown faster than the mature markets.

Lenovo overhauled its business organization earlier this year to divide its regional operations into two business groups, with one catering to developed markets and the other, emerging markets. The company has also set up two product groups based on its "Think" and "Idea" branded products, which mainly serve corporate customers and consumers, respectively.

The reshuffle, together with the cut of 2,500 jobs it announced in January, will help the company to save $300 million in operational costs in the year to come, it said.

Lenovo reported a net loss of $226.4 million for the last fiscal year.