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2/1/2007
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Lenovo Boosts Worldwide Profits, But Slumps In Americas

PC maker Lenovo reported above-industry growth for its fiscal fourth quarter, showing profitability in every region but the Americas, and said its focus on improving its operations was beginning to bear fruit.

PC maker Lenovo reported above-industry growth for its fiscal fourth quarter, showing profitability in every region but the Americas where its sales declined and it lost money.

The Raleigh, N.C.-based computer maker, which runs much of its operations in China, reported its earnings after the close of trading on the Hong Kong stock exchange, where its shares are listed. Lenovo's worldwide revenue for the quarter was $4 billion, about flat from last year, but it reported a profit of $64 million compared with $47 million for the same quarter a year earlier.

Lenovo executives noted the company grew its shipments during the quarter by about eight percent, slightly above the industry's average, and that it grew worldwide market share during the final quarter of 2006. They credited major efforts toward reducing operating costs, streamlining product SKUs, and improving efficiencies.

A particular disappointment to the company was its performance in the Americas. Last week, the company said that its Americas president, Scott Smith, was leaving Lenovo to pursue other interests.

"Americas remain to be a problem," said Mary Ma, Lenovo's chief financial officer, in a conference call with financial analysts following the earnings announcement. Lenovo's Americas business reported sales of $1.042 billion, compared with $1.147 billion for the same period a year earlier, while losing $3 million compared with a $25 million profit for the same quarter one year earlier.

Ma's remarks track with private comments in recent weeks from several Lenovo solution providers, who have said that the company may have lost focus in the U.S. channels. While Lenovo spokesmen have said no major changes to channel strategy or operations have occured in the U.S., channel sources say the company's expansion in retail outlets and web sales last year may have watered down the attention it paid to working with solution providers.

The company did show strength in a number of areas. In addition to continue its brisk pace of growth in China, where the company has a long heritage, Lenovo saw 20 percent growth in its core notebook business and 2.2 percent growth in desktops. Lenovo CEO William Amelio said the company made strides in building acceptance of its Lenovo brand worldwide. Amelio detailed improvements Lenovo has made in its worldwide operations, following targeted layoffs and some restructuring launched last year.

"Our cost-cutting programs helped our business respond effectively to intense pricing pressure and slow demand in the enterprise space," Amelio said. In addition, Amelio said Lenovo, which acquired the former IBM PC Co. almost two years ago, has stopped relying on IBM's sales force as a leading business driver.

"The IBM sales force was selling a full complement of the products, including PCs," Amelio said. "It was always part of the plan to make sure we had our own PC specialists." He noted, "We are reducing our reliance on IBM, and shifting sales to our own, dedicated teams." Amelio said it has been a "phased transition over the last six months, which is now completed."

Lenovo Chairman Yang Yuanqing, also speaking on the conference call with analysts, vowed the company would continue its efforts to become more efficient and grow sales outside of China. However -- whether intentional or not -- the chairman drew a strong contrast between Lenovo and rival Dell, which a day earlier announced that it had replaced its CEO Kevin Rollins with founder and Chairman Michael Dell after months of struggles for Dell.

"Transformation is a long and grueling process," Yang said. "The board is willing to give our management more quarters to achieve results. We continue to support them."

When an analyst attempted to get a comment from Amelio on upper management changes at competing PC makers, Amelio demurred but Yang offered: "We are confident in our leadership."

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