Lenovo Stumbles in Second Quarter

The PC maker's profits fall 16 percent in the second quarter as the company continues to struggle with brand recognition and its purchase of IBM's computer division.

Lenovo Group, the worlds third largest PC maker, reported Nov. 9 that net profits for its second fiscal quarter fell 16 percent compared with last year as the company struggles with brand recognition and slow growth in the computer market.

The Raleigh, N.C., company reported that its profits for the fiscal quarter ending Sept. 30 were $38 million compared with $45.2 million a year ago.

Lenovo also reported $3.7 billion in revenue, a 1 percent increase from a year ago.

Despites its presence in the emerging Southeast Asia market, especially in China where the company was founded, Lenovo continues to struggle with absorbing its $1.75 billion purchase of IBMs PC division in April 2005.

Lenovo is also fighting its way through a sluggish PC market, which has affected the entire industry this year. The company has also found difficulties in creating brand recognition, especially in North America and Europe.

/zimages/5/28571.gifClick here to read more about Lenovos new desktops and notebooks.

"We are confident that the business is moving in the right direction and that we will soon begin to see the benefits of our strategic initiatives and hard work," William Amelio, Lenovos president and CEO, said in a statement.

"Our expense reductions are on track, and we are making solid progress against the four key initiatives—transaction model rollout, supply chain improvements, desktop competitiveness and brand-building—introduced last quarter," Amelio added.

Overall, Lenovo remains a Chinese company. That market accounted for 39 percent—or $1.4 billion—of the companys revenue in the fiscal second quarter. In North America, the company saw its PC shipments drop by about 9 percent.

According to a recent IDC report, the companys PC sales worldwide put it behind both Hewlett-Packard and Dell. In the U.S. market, Lenovo was sixth behind HP, Dell, Gateway, Apple and Toshiba.

In its quarterly report, Lenovo reported that its notebook shipments were up 20 percent this year compared with last year, and its desktops shipments increased by about 4 percent.

Lenovo continues to struggle with its supply chain, especially in North America, and it is looking to streamline its operations, said Martin Kariithi, an analyst with Technology Business Research.

/zimages/5/28571.gifClick here to read more about Lenovo offering Cingulars WWAN service in the ThinkPad.

In North America, Lenovo has begun to invest in retail sales, its VARs and its channel program to help sell more products to both consumers and SMBs (small and midsize businesses).

"They really want to get in the SMB market and thats where they think they can compete with HP and Dell," Kariithi said. "In terms of the SMB market, Lenovo is trying to make some traction there, and it has been really aggressive with big marketing campaigns and branding deals."

On Oct. 23, the company announced an advertising deal with the National Basketball Association. Lenovo is also a main sponsor of the 2008 summer Olympic Games, which will be held in China.

With competition from other companies, such as Acer, Lenovo has been forced to cut prices and that has affected the companys margins and overall profits this fiscal quarter, according to Kariithi.

Kariithi said Lenovos fortunes should improve during the next few years, but the company will remain focused on the emerging markets in India and China more than with North America and Europe.

/zimages/5/28571.gifCheck out eWEEK.coms for the latest news in desktop and notebook computing.