Rough Quarter Puts Lenovo in Red Ink

IBM acquisition, poor sales lead to financial woes and restructuring plan.

Sumner Lemon and Dan Nystedt, IDG News Service

A strong performance in China wasn't enough for Lenovo Group, which swung to a loss during the fourth quarter of its fiscal year.

Lenovo's fourth-quarter PC shipments either declined or were flat in every market except China. The biggest hit came in Asia-Pacific, excluding China, where shipments fell 5 percent over the same period last year. European shipments fell 3 percent while shipments in the Americas were flat, the company said.

Shipments were stronger in China, rising 31 percent over the same period last year.

Lenovo earned revenue of $3.1 billion (as of March 31, the last day of the period being reported) during the fourth quarter. That represents a 417 percent increase over the same period last year. However, that period last year did not include revenue from IBM's former PC division, which Lenovo formally acquired in May 2005.

IBM Acquisitions Triggers Slump

That acquisition has proven difficult to digest. In March, Lenovo announced a $70 million restructuring plan designed to improve its operational efficiency. The company took a one-time charge for that expense during the fourth quarter, which deepened its loss to $116.4 million.

Lenovo also suffered heavy losses in the Americas, where the company reported an operating loss of $32.5 million on revenue of $1 billion.

Despite the company's steep losses, Lenovo executives remained upbeat, saying the restructuring program will improve its overall competitiveness.

While it's crafting its turnaround story, however, Lenovo needs to keep an eye on its rearview mirror. Taiwanese rival Acer, which has set its sights on knocking Lenovo off its third-place perch in the global PC market, performed far stronger than the Chinese company during the first three months of this year.

Acer reported its net profit nearly doubled to $160.8 million during the period, while its revenue increased 26 percent from last year, to $2.55 billion.