Lenovo Group Ltd is expected
to post its second straight quarterly loss as the world's third-largest PC maker
struggles to turn around the loss-making business it bought from IBM.
But some analysts continue to hold out hope for improvement over the year,
partly because of a traditionally more vibrant second half for China's top PC
maker, but also because Lenovo should get a firmer grip on an IBM PC business
that vies with the likes of Sony Corp and Toshiba Corp in Asia.
The firm, which suffered a deeper-than-expected HK$903 million (US$116
million) fiscal fourth-quarter loss, is expected to post a loss of HK$38.5
million for the quarter ended June, according to a consensus mean of forecasts
from five analysts polled by Reuters.
The forecasts ranged from a maximum of HK$126 million profit to a loss of
HK$260 million.
That compares with a net profit of HK$357 million for the same period of 2005
for the Chinese giant, which vies worldwide with Dell Inc and Hewlett-Packard
Co.
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 US$1.25 billion
purchase of IBM's PC arm in 2005. It is due to unveil quarterly earnings on
Thursday.
First-quarter results could include restructuring costs of between HK$73
million and HK$200 million, analysts said.
The company said in March that it would cut about 1,000 jobs, or 5 per cent
of its workforce, as part of a six- to 12-month restructuring plan to save
US$250 million annually in costs following the IBM deal.
"There will be no more restructuring-related losses this quarter should be
the end of it," said an analyst with a major European investment bank.
"The second half of the year is a high season for PCs, and because of that,
their operation leverage will be positive."
Despite what's expected to be another less-than-stellar quarter, Lenovo has
been having some success carving out a global footprint.
Its global market
share in the year's second calendar quarter equivalent to Lenovo's fiscal first
climbed to 7.7 per cent from 6.4 per cent in the first quarter and 7.5 per cent
a year ago, according to consultancy IDC.
Still, analysts reckoned that that market share gain could have come at the
expense of profit margins. The firm which has stated publicly that profits are
not a prime concern for now faces persistent pricing pressure.
Over the past year, it had tried to arrest a slide in market share to larger
rivals Dell and HP.
In July, Dell warned that earnings in its fiscal second-quarter beginning in
May would fall about 30 per cent short of forecasts, blaming what it called
"aggressive pricing" in a slowing market, though some analysts said the problems
were largely company specific.
Lenovo Chairman Yang Yuanqing told Reuters in May that the firm would focus
on expanding market share and was ready to cut prices to keep up.
"Lenovo is an interesting story and we are positively biased, but to see
results will require patience," said Credit Suisse analyst Venugopal Garre, in a
research report issued on Monday.
Lenovo's shares fell 13 per cent from April to June, underperforming a 3 per
cent gain on the benchmark Hang Seng Index during the same period. The stock was
up 0.8 per cent at HK$2.52 at midday yesterday.
Lenovo hopes to transform itself into a notebook powerhouse by combining its
expertise in lower-end PCs with the strength in laptops it bought along with Big
Blue's PC assets.
Notebooks accounted for just under 50 per cent of group sales last year but
that ratio would increase this year, Yang said in May.
