Lenovo net profits slump 22.7% as demand shrinks
Updated: 2008-11-08 07:54
By Hui Ching-hoo(HK Edition)
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China's largest PC maker Lenovo posted a 22.7 percent drop in net profits for the first six months of the 2008-09 financial year as the demand for PC in developed countries had shrunk.
The company's president and CEO, William Amelio, said that the company will streamline its operation, at which a $24 million related cost will be booked in the second half.
He noted that the restructuring will be pushed forward over the coming quarters, with the total cost of the plan expected to be somewhere between $75 million and $100 million.
Asked whether layoffs will be a part of the restructuring, Amelio parried the question, saying the management will take any possible measure to make the company more efficient.
Amelio also dismissed the speculation that Lenovo is keen on purchasing stakes of the consortium between Fujitsu and Siemens.
He added that the company will continue to seek for enterprises in term of M&A, saying the potential candidates should be able to enhance the company's scale and efficiency.
Lenovo recorded total sales of $8.53 billion during the period, up 5 percent, year-on-year, while the gross margin dipped to 13.3 percent from 14.9 percent in the corresponding period at 2007.
Meanwhile, the company incurred capital expenditure of $106 million for acquisition of property, plant and equipment and investment in the information technology systems.
The company's chairman, Yang Yuanqing, said the US financial turmoil had affected the company's business, noting the "winter" that is the economic recession has just begun.
Amelio expressed disappointment with the first-half result, attributing the fall to the slowdown of market demand in developed countries such as the UK. Together with the strengthening US dollar, it significantly increased the company's cost of sales.
To counter the currency risk, the company's senior president and CFO, Wong Wai-ming, said that the company has made hedging for 75 percent of its non-US dollar sales.
Aside from the shortfall of the developed countries, emerging markets including China delivered a stellar performance.
The company added 0.4 percentage points to its share of China's PC market to 28.5 percent between March and September, while PC shipments to the country increased by 14 percent. The nation currently accounts for about 43 percent of the company's total sales.
Shares of Lenovo on Friday closed at HK$2.22, down 11.9 percent.
(HK Edition 11/08/2008 page2)