By Wang Xing (China Daily)
Updated: 2008-02-01 10:45

 

Lenovo products at an electronics market in Nanjing, Jiangsu Province.  [China Daily]

PC maker Lenovo Group said yesterday it will offload its handset business for $100 million to a group of private equity firms to boost profitability.

Lenovo will sell its loss-making mobile-phone business, which saw shipments drop 31 percent in the past quarter, to focus on its core PC business, it said in a statement to the Hong Kong stock exchange.

Hony Capital Fund, a private equity firm partly owned by Legend Holdings, the parent of Lenovo Group, will acquire 60 percent of Lenovo's handset arm through its subsidiaries Ample Growth and Jade Ahead, while private companies LEV Ventures and Super Pioneer will take the rest.

Lenovo entered China's mobile phone market in February 2002, when the company established a 60-40 joint venture with domestic home appliance maker Xoceco (Xiamen Overseas Chinese Electronic), which later sold all its shares in the joint venture to Lenovo.

Although the company is the fourth player in China's mobile phone market after Nokia, Motorola and Samsung, and has been successful in China's fourth- to sixth-tier cities in recent years, its shipments fell dramatically after industry giants like Nokia and Motorola forayed into China's rural areas.

According to Lenovo's third-quarter report released yesterday, the company's handsets revenue dropped 11.5 percent to 108 million in the past three months, accounting for 2 percent of its total revenue.

"Compared with its PC business, Lenovo does not have the core competitiveness in making mobile phones and its handset business has long been limited in the Chinese market," said Simon Ye, an analyst at research firm Gartner.

"I think the sale is good news for Lenovo. Now it can focus on its core business and compete with rivals like HP, Dell and Acer."

According to Lenovo, its third-quarter PC shipments rose 22 percent compared with the previous year, boosting the company's revenue to $4.6 billion, an increase of 15 percent over the same quarter of 2006.

Its net profit surged to $172.6 million, up from $57 million in the year-ago period and $105.3 million from the previous quarter.

But Ye said Lenovo may face fiercer competition in the future as the world PC market has entered a consolidation stage.

"In the global PC market, Lenovo's third place has been taken by Acer after the aggressive Taiwanese PC maker acquired Gateway and Packard Bell last year," he said. "In China, the company is also facing fiercer competition from rivals like HP, which has taken Founder as the second player in the market."