Lenovo, the world's third largest personal computer (PC) manufacturer, suffered a 53 per cent plunge in net profit in the first half of the fiscal year due partly to sluggish markets and efforts to absorb IBM's PC division.

Lenovo earned US$43.09 million in the first six months through September, against US$91.2 million in the same period last year, representing a 53 per cent drop. Turnover rose 16 per cent to US$7.18 billion.

Affected by sluggish expansion in the European and US markets, as well as continued payments for its IBM purchase, analysts expect the company is unlikely to see an upswing in the coming two years.

During the second fiscal quarter, Lenovo's worldwide PC shipments grew about 10 per cent versus the industry average of approximately 8 per cent.

In the past quarter, its business on the Chinese mainland "continued its high growth and captured additional market share, while our worldwide market share also grew," said Yang Yuanqing, the company's chairman.

However, Yang stressed that the company will keep its focus on cost structure, sales models, product competitiveness and supply chain efficiency in the face of slow growth in the PC market and intensified competition.

The company's PC shipments to the United States decreased 9 per cent in the second fiscal quarter, while shipments to Europe, the Middle East and Africa increased 5 per cent. Shipments on the Chinese mainland were up 25 per cent, which is ahead of the market's average growth rate.

"Lenovo is struggling to increase its presence in overseas markets such as Europe and the US in light of the market being dominated by giants such as Hewlett-Packard (HP) and Dell," said Casor Pang, a strategist at the Sung Hung Kai Financial Group.

"The US government is reluctant to open its domestic computer market to foreign companies," he added.

The bearish performance of the company was also attributed to further payments of its IBM acquisition.

In 2004, the company offered US$1.25 billion, including US$650 million cash and US$600 million Lenovo stock, to acquire IBM's PC arm.

"The amortization of the payment will drag the company's profit down in the foreseeable future, which is unlikely to turn around in two years," said Pang.

Ricky Cheung, fund manager of Philip Capital Management (HK), said the company can still ride the boom of China's computer market.

"The result was not too bad compared to the (financial) results last year," Cheung said, "The company is expected to outshine other (Chinese) technology stocks as long as it effectively trims the IBM business."

Lenovo shares rose 19 per cent from July to September, outperforming a 7.8 per cent gain in the benchmark Hang Seng Index and 6.6 per cent dip by Dell.

The company's share price eased at HK$3.4 (44 US cents) yesterday, decreasing 0.29 per cent.

Source: China Daily