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Lenovo tipped to post second straight loss

By Alison Leung (China Daily)
Updated: 2006-08-02 09:15

Lenovo Group Ltd is expected to post its second straight quarterly loss as the world's third-largest PC maker struggles to turn around the loss-making business it bought from IBM.

But some analysts continue to hold out hope for improvement over the year, partly because of a traditionally more vibrant second half for China's top PC maker, but also because Lenovo should get a firmer grip on an IBM PC business that vies with the likes of Sony Corp and Toshiba Corp in Asia.

The firm, which suffered a deeper-than-expected HK$903 million (US$116 million) fiscal fourth-quarter loss, is expected to post a loss of HK$38.5 million for the quarter ended June, according to a consensus mean of forecasts from five analysts polled by Reuters.

The forecasts ranged from a maximum of HK$126 million profit to a loss of HK$260 million.

That compares with a net profit of HK$357 million for the same period of 2005 for the Chinese giant, which vies worldwide with Dell Inc and Hewlett-Packard Co.

Lenovo, one of a handful of Chinese firms trying to forge a global brand by investing abroad, has been coping with expenses arising from its US$1.25 billion purchase of IBM's PC arm in 2005. It is due to unveil quarterly earnings on Thursday.

First-quarter results could include restructuring costs of between HK$73 million and HK$200 million, analysts said.

The company said in March that it would cut about 1,000 jobs, or 5 per cent of its workforce, as part of a six- to 12-month restructuring plan to save US$250 million annually in costs following the IBM deal.

"There will be no more restructuring-related losses this quarter should be the end of it," said an analyst with a major European investment bank.

"The second half of the year is a high season for PCs, and because of that, their operation leverage will be positive."