Lenovos Lack of Brand Heft Dings Q4, Analysts Say

The company's fourth-quarter loss, which doubled forecasts, was due to Lenovo's struggles in building itself as a brand, analysts say.

Thirteen months after acquiring IBMs personal computer division for $1.25 billion, Chinas Lenovo Group revealed a fourth-quarter loss May 25 that doubled analysts forecasts.

Analysts said the shortfall reflects Lenovos struggles to build itself as a brand.

Lenovo, the worlds third-largest PC maker behind Dell and Hewlett-Packard, reported earnings of 32 cents per share on May 24.

The net loss it posted of $116 million for the quarter ended March 31 compared with a $21.4 million profit a year earlier.

The earnings fell well short of a forecast by Thomson Financial, based on a survey of 21 analysts.

The companys net profit for the year was reported as $22.33 million, down from $154 million a year earlier.

Chinas No. 1 maker of personal computers has been losing market share to Dell and HP for the past 12 months.

Although its Asian operations are profitable overall, the company posted an operating loss in Asia in the fiscal third quarter, which was a clear indication to several analysts of the unsettled business situation it inherited from IBM.

Big Blue was losing about $200 million per year in its PC division before unloading it last May 1.

Lenovo told Reuters it is spending about $100 million to overhaul its PC-making operations, but it also said it expects to record savings up of $100 million this year and $250 million annually over the next few years.

Several PC industry analysts agreed that despite owning the ThinkPad brand, Lenovos own lack of name recognition in the United States has hurt sales.

"To most of the world, its been Lenovo who?" said Leslie Fiering, a PC industry analyst with Gartner Group in San Jose, Calif.

"Lenovo spent a lot of money advertising [$16 million] during the [Turin] Winter Olympics, but the Olympics are over. They also spent a lot sponsoring a name soccer player ... and now they have cash-flow problems. Those arent the kind of [marketing] methods that will build a brand over time."

Fiering also said that the Lenovo channel sales strategy also has serious issues.

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"They have had phenomenal success in China for years, but they have been unable to crack the international markets," Fiering said.

"When IBM was the sole distributor at the beginning [in mid-2005], the arrangement worked pretty well. Since then, however, the IBM sales force has been getting heavier incentives to sell IBMs own products and services, so that has left Lenovo on its own."

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Chris Preimesberger

Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he has...