Lenovo results, outlook send PC makers down

Lenovo results, outlook send PC makers down

Wall Street battered shares of major U.S. computer vendors after Chinese PC maker Lenovo announced its latest earnings results.

Wall Street wasn't very impressed by the results presented by PC maker Lenovo Group late Thursday, sending shares of major U.S. computer vendors broadly lower. The earnings report from the third largest PC vendor in the world showed was stiff competition in the global PC market and falling prices, which are good for users but bad for companies.

Shares of the world's largest PC vendor, Dell, dropped 0.5 percent, or US$0.15 cents to US$29.31, while global number two Hewlett-Packard fell 1.6 percent, or US$0.51 cents to US$31.60 and Apple Computer shed 2.5 percent, or US$1.87 to end at US$72.33.

The decline in shares of PC makers was in contrast to rising U.S. stocks in general on Thursday, with the Dow Jones Industrial Average ending up 0.9 percent and the Nasdaq Composite Index adding 1 percent.

Lenovo's earnings in its most recent quarter, which ended Dec. 31, "were poor. Overall revenues were in-line but earnings were hurt by weaker margins. Encouragingly, management committed to tackling key problems -- uncompetitive operating costs, an incomplete product line, and continued lack of scale in the [small and medium business] market -- that underpin Lenovo's current underperformance," said Tien Yu Sieh, an analyst at Merrill Lynch in Hong Kong that covers Lenovo, in a Friday research note. He predicted a tougher quarter ahead for the company.

On Thursday, the Chinese PC maker reported revenue of HK$31.1 billion (US$4 billion as of Dec. 31, the last day of the quarter), up 392 percent from the same quarter a year earlier driven by its acquisition of IBM's PC business last May. Net profit was HK$365 million, up 12 percent year-over-year.

The results failed to meet analyst expectations, and the company's view for a weaker January to March quarter also hurt.

"Our current cost structure and competitiveness has not been optimized and our product portfolio is not complete enough," said Yang Yuanqing, the chairman of Lenovo, during a conference all with analysts. "We should have higher aspirations," he added, promising decisive moves by management to improve performance.

Lenovo's year-on-year PC shipment growth in 2005 was the worst among the top five global PC vendors, according to market researcher IDC. Lenovo's shipments grew just 12.6 percent compared to global growth of 17.1 percent and Dell's 20.1 percent increase. The Chinese company's main rival in Asia, Acer, also reached brisk 52.5 percent year-on-year growth last year, according to IDC.

The company blamed poor performance in some key Asian markets for some of its woes, including Japan and South Korea. Executives at Lenovo vowed to increase operational efficiency, boost its product line, and focus more on profitability.

"In this industry, it's required of us to be best-of-breed in terms of operational efficiency," said William Amelio, the chief executive officer and president of Lenovo, during his first appearance at a Lenovo earnings conference. Lenovo nabbed Amelio from Dell in December of last year. He was president of Dell's Asia operations before moving over to Lenovo.

The company expects its turnaround efforts to bear fruit within the next few quarters.

The next major PC vendor to report its earnings will be Hewlett-Packard on Feb. 15, followed by Dell on Feb. 17. The company's reports help gauge the health of the global PC market.

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