Lenovo profits return as restructuring pays off

Top Chinese PC maker Lenovo posted its first quarterly net profit in a year on Thursday, marking gains from a restructuring and strong sales in emerging markets.

But while Lenovo's PC shipments to consumers rose substantially in the quarter, commercial demand remained soft and may not fully pick up until a new wave of hardware spending in the second half of next year, company executives said in a call with reporters.

Lenovo posted a net profit of $53 million for the three months ended Sept. 30, more than double its net profit in the same quarter a year earlier. Lenovo had posted net losses for each of the previous three quarters. The company also reported sales for the most recent quarter of US$4.1 billion, slightly below $4.3 billion a year earlier.

"China's strong performance largely contributed to this turnaround," said Lenovo CEO Yang Yuanqing. Lenovo's unit shipments in China, which accounted for nearly half of its global sales, were 28 percent higher than one year earlier. By contrast, its shipments in mature markets were flat compared to a year earlier.

Cost-saving from Lenovo's major restructuring announced early this year also helped push it into the black, said Lenovo chief financial officer Wong Wai Ming. Lenovo announced nearly 3,000 lay-offs this year as it reshaped its business to focus more on China and other emerging markets. Those moves came after the global economic recession dealt a blow to Lenovo's PC sales in North America and Western Europe.

The release of Windows 7 last month is widely expected to spark a round of hardware replacement at big businesses in coming months. Lenovo's corporate customers have taken quickly to testing machines with the new operating system, which represents a "real opportunity" for Lenovo, company chief operating officer Rory Read said.

"We could see early activities as early as this quarter and we'll see that accelerate," Read said.

High prices for components such as LCD screens and memory are likely to keep pressure on Lenovo's margins through the holiday season, said Yang.

The IDG News Service is a Network World affiliate.