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Lenovo profit surges on cost cuts, notebook shipments

The China-based PC maker more than doubles its fiscal second-quarter profit to $53 million, despite a decline in sales.

After three quarters of losses, Lenovo has turned a profit again. The computer maker announced Thursday that its fiscal second-quarter earnings more than doubled to $53 million versus $23 million a year ago.

Profit for the quarter ended September blew way past estimates of only $24 million from analysts surveyed by Bloomberg.

Despite a 5.2 percent sales decline to $4.1 billion from $4.3 billion in the year-ago quarter, Lenovo achieved its profits through extensive cost cuts and a record leap in market share.


The company had previously kick-started a major restructuring program designed to trim expenses and streamline business operations. As a result, Lenovo was forced to lay off a sizable number of employees and take a one-time restructuring charge of $3 million in the second quarter. But the company now expects to save around $300 million annually.

During the quarter, Lenovo says it also saw its worldwide PC shipments surge 17 percent over the prior year, dramatically outpacing the industry average of only 2.3 percent.

"In the last quarter, our share in the global market climbed to a historic high and we returned to profit," said Lenovo CEO Yang Yuanqing in a statement. "At the same time, our expenses-to-revenue ratio improved notably, reaching the best level since the acquisition of IBM's PC division. These achievements bear witness to the clear strategies we set at the beginning of the year and our effective execution of those strategies."

Lenovo's quarterly results were powered by its notebooks, which contributed 63 percent to overall revenue. Though notebook sales dipped 1 percent from the prior year, shipments shot up 37 percent, compared with an industry average of 16 percent.

During the quarter, the company unveiled a few new products, including the IdeaPad U450p, a thin and light consumer laptop, and SimpleTap, an application to help users navigate the touchscreens on Windows 7-enabled machines like the ThinkPad X200 Tablet and ThinkPad T400s.

Desktop sales, however, fell 13 percent from the prior year's quarter, kicking in only 35 percent to Lenovo's overall revenue. Desktop shipments fell 2 percent, but outpaced the industry average of a 12 percent decline. The company said it has reacted to the PC market shift from desktops to laptops by introducing new entry-level low-cost desktops and revamping its product line for small and medium-sized businesses.

Lenovo enjoyed a stellar second quarter in its home base of China where sales jumped 9 percent to $2 billion. Shipments in the country jumped 28 percent compared with the average of only 0.1 percent. Already the leading PC vendor in China, the company boosted its market share there to 29.4 percent.

Earlier this year, Lenovo said that it would refocus its efforts on China and other emerging markets, a strategy that appears to have paid off.

"Our results are moving in the right direction and we are particularly pleased with our performance in China and in the transactional business model," said Lenovo Chairman Liu Chuanzhi in a statement.

The year had been a volatile one for Lenovo. The company was hit a string of quarterly losses, leading to the resignation of President and CEO William Amelio in February. Job cuts and the restructuring also took their toll.

But based on its second quarter, Lenovo is optimistic about the near term.

"In the coming quarters, we will continue to reinforce our leadership in China, improve the sustainability and profitability of mature markets, seize growth opportunities in emerging markets and our transactional business, continue to strengthen cost structure, and innovate with raising efficiency and customers' needs in mind," said Chuanzhi.