Lenovo Sales, Profit Jump

May 24, 01:21 PM

Current Headlines: By Anne Krishnan, The News & Observer, Raleigh, N.C.

May 24--This time last year, as Lenovo tried to crawl out from under a staggering loss, its chairman pleaded with investors to be patient for several more quarters.

On Wednesday, the company delivered the kind of results its shareholders were waiting to hear.

The world's No. 3 computer company announced that its profits, market share and American and global sales all increased after a strong fourth quarter, signs that Lenovo's new structure and strategies might be having an effect.

"The fourth quarter was the first time we performed as the new Lenovo," CEO Bill Amelio said at a Hong Kong news conference. "We're very pleased with this progress, and we're confident we have made the right steps to maintain this progress."

The Chinese company has struggled to increase its sales and profits since acquiring IBM's personal computer division in 2005. In addition to trying to turn around the former IBM operation, which was losing money when Lenovo bought it, the company has faced heavy competition.

Since Amelio became chief executive in December 2005, he has reorganized Lenovo's global operations, laid off 2,400 workers and developed strategies to sell computers to consumers and small and midsize companies.

Lenovo saw its most striking turnaround in the Americas, where its operations returned to profitability in the fourth quarter, after posting losses throughout the 2006 calendar year. Sales in the U.S. and the rest of the Americas rose 4 percent last year, reversing a decline, the company said. PC shipments in the Americas increased 9 percent in the quarter.

A growing U.S. presence could mean more stability for employees at Lenovo's Morrisville headquarters, which has been hit hard by two rounds of layoffs. The most recent, announced in April, is cutting 350 workers from a work force of 1,700.

A strong U.S. performance is important for Lenovo, which is working to build its brand outside China. The United States is the world's largest PC market, and without success here -- particularly with consumers -- analysts say the company will have a hard time taking away global market share from Dell and Hewlett-Packard and fending off smaller Asian rival Acer.

PC sales in the U.S. are expected to increase 12 percent to $70 billion this year, Bryan Ma, a Singapore-based analyst at IDC, told Bloomberg News.

Worldwide, Lenovo's new sales strategy drove revenue growth in all of its regions to $14.6 billion, up 10 percent for the year. Lenovo's profit increased about sevenfold to $161 million in its most recent fiscal year.

In the fourth quarter, it had a $60 million profit, compared with a $116 million loss in the fourth quarter of 2006. Profit margins hit a record 14 percent for the year.

Analysts surveyed by Bloomberg News expected a $124 million annual profit and $27.5 million in profits for the quarter.

The results reflect strong progress under Amelio, Citigroup analyst Kirk Yang told the Associated Press.

"The speed of the turnaround, the progress, is much better than anybody expected. Very, very solid results," Yang said. "Now we think they are clearly on the right track."

PC shipments rose 12 percent during the year, outpacing the industry's average 10 percent growth.

Lenovo said that its worldwide market share rose 0.2 percentage points to 7.4 percent.

The company's net income will probably take a hit in the current quarter as it absorbs as much as $60 million in restructuring costs from the layoffs. By the end of the year, that expense should be outweighed by $100 million in expected savings.

Lenovo announced its year-end results after the close of the Hong Kong stock market. Its stock-like American Depositary Receipts, which usually trade very little, rose 30 cents to $8.45 Wednesday in New York.

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