Lenovo margins pressured in return to emerging mkts

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Lenovo is facing pressures from competition and volatile financial markets, as the world's No.4 PC brand posted a quarterly profit that lagged forecasts, dragged down by shrinking margins in its return to its roots as an emerging markets specialist."Margins will still be under pressure in the coming year due to the ongoing product mix shift to lower end or entry level products, and also we see that the previous premium product, the Thinkpad, is tending to be more of a mass market product," said BOCI analyst Frank He.In the face of those kinds of pressures, Lenovo saw its gross profit margin fall for its fiscal year through March 31 to 10.8 percent from 12.1 percent. It warned about pressure going forward from rising prices for memory chips and LCDs.Company executives said Lenovo would continue to push into emerging markets, with a target of double-digit share in the fast-growing economies of Russia, India, Turkey and Poland in the next one to two years.It now gets much of its revenue from its home China market, which accounted for 47 percent of sales in the fiscal year."I believe this year represents a turning point for Lenovo," said Chairman Liu Chuanzhi at a media briefing to discuss the results. "We're forging ahead to continue to consolidate our position in China and other markets, and the management know that they have my full support."To view a graphic on Lenovo's earnings, click http://graphics.thomsonreuters.com/10/HK_LNV0510.gifTo view a graphic on global market share by major PC makers, clickhttp://graphics.thomsonreuters.com/10/GLB_PCSLS0510.gifLenovo has been trying to return to its roots as an emerging markets specialist after it struggled to integrate overseas-focused assets it acquired when it bought IBM's laptop PC unit in 2005.Its efforts have been paying off. The company saw the biggest improvement in shipment numbers among the top PC brands in the first quarter of this year, research firm IDC said in April, with shipments up more than 58 percent.That was better than rivals such as global leader Hewlett-Packard, Taiwan's Acer, and Dell, who altogether took more than 46 percent of all PCs shipped in the first quarter of 2010.Lenovo reported a net profit of $12.78 million in its fiscal fourth quarter through March, reversing a $263 million loss it reported a year earlier. The result was worse than the $35.5 million net profit forecast, according to 20 analysts surveyed by Thomson Reuters I/B/E/S."The topline is quite in line but the gross margin dropped from 11.1 percent in the last quarter to 10.4 percent in (their fiscal) Q4. That is the major reason for the miss," said BOCI's He.Lenovo also faces pressure from volatile financial markets. Chief Executive Yang Yuanqing said the falling Chinese stock market and Greek debt crisis would both affect the company's performance, but declined to give any specifics.The company's revenue rose 11 percent for the fiscal year through March to $16.6 billion.Lenovo's shares were up 3.9 percent before the results, beating a 1.2 percent advance on the benchmark Hang Seng Index. So far this year, its shares are down 18 percent versus an 8 percent fall on the main board.(For more business news on Reuters Money visit http://www.reutersmoney.in)
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