Computing

Lenovo Reports Quarterly Results

Lenovo (LNVGY.PK) results for its second fiscal quarter ended September 30, 2005, showed continued overall revenue and profit growth. The quarter is the first reflecting a full three months' contribution from Lenovo's acquisition of IBM's (IBM) former Personal Computing Division (PCD), which closed on April 30, 2005.

Lenovo's consolidated revenue for the second fiscal quarter ended September 30, 2005, increased 404% year over year to HK$28.5 billion. In the same period, pre-tax income increased 70% to HK$507 million, and profit attributable to shareholders grew 22% to HK$354 million.

Basic earnings per share for the second quarter grew 2% year over year to 3.95 Hong Kong cents from 3.89 Hong Kong cents. Lenovo's board of directors declared an interim dividend of 2.4 HK cents per share.

Lenovo's performance in the second quarter was positive as PC shipments grew 13% year over year (according to industry reports). The results were driven by shipments of PC systems introduced after the PCD acquisition, such as the ThinkPad X41 Tablet PC and the model refresh of the ThinkCentre desktop PC line.

Lenovo's PC operations in China, the Americas and Asia Pacific all showed profitability, although the PC operations in EMEA (Europe/Middle East/Africa) reported a loss.

Lenovo said revenue and volume in its key emerging markets were strong, based on the company's proven template for successfully operating in emerging markets. Revenue and volume in China and India both outpaced the overall PC industry in which the company competes. In Greater China, Lenovo's consolidated revenue was HK$10.2 billion and the segment reported HK$567 million in operating profit.

Lenovo's revenue in Asia Pacific (excluding Greater China) was HK$3.4 billion, with operating profit of HK$99 million, reversing last quarter's loss. Lenovo's revenue in the Americas was HK$9.1 billion and the segment reported HK$215 million in operating profit.

In the Americas, Lenovo grew shipments to record levels, although year-to-year growth was slower than the industry. In the Europe, Middle East and Africa (EMEA) region, revenue was HK$5.8 billion, with an operating loss of HK$68 million, because prior to its launch of the new ThinkCentre E Series desktop PC line, the company did not participate in the fast-growing sectors of the small/medium business market (SMB) market.

Lenovo's overall gross margin increased 2% points to 14.0%, from the prior year, although the second quarter's gross margin showed a sequential decline, reflecting the impact of three full months of the PCD acquisition (versus only two months' impact in the first quarter).

Revenue in Lenovo's mobile handset business, conducted primarily in China, more than doubled year over year to HK$1.1 billion.

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