Lenovo Fires on All Cylinders in Q4

China-based PC maker Lenovo, which altered the personal computer landscape with its purchase of IBM's (NYSE: IBM) personal computer line, returned all of its operations worldwide to profitability in the fourth quarter, including the first-ever profit for its U.S.-based business, the company said.

Lenovo earned US$161 million for the fiscal year that ended March 31, up from $22 million for the previous fiscal year, it reported. In the fourth quarter, profit was $66 million, and for the first time all of its separate operating units -- including the Americas region that counts the IBM activities among its operations -- posted a profit.

The $1.2 billion purchase of IBM's PC unit in 2005 -- including the hugely popular ThinkPad notebook brand -- vaulted Lenovo to third place among PC makers worldwide. Recently, the company slipped to fourth place overall.

Pleased With Progress

Following extensive work to integrate the IBM purchase and find the expected cost savings, the year ended well, Lenovo said.

"The fourth quarter was the first time we performed as the new Lenovo," said CEO William J. Amelio. "We're very pleased with this progress, and we're confident we have made the right steps to maintain this progress."

For the year, sales rose just under 10 percent to $14.6 billion, boosted by consumer sales of both desktop and notebook systems. The company made modest gains in market share, boosting its take of the overall PC segment to 7.4 percent compared to 7.2 percent in the previous year, the company said.

Ready to Pounce?

Now that it has the integration of the IBM product line in hand, Lenovo is eying additional growth. The company's sales grew faster than the overall PC industry in the fourth quarter, with Lenovo marking a 17 percent growth in shipments compared to 11 percent for the industry as a whole, Lenovo said.

The integration and related changes, such as a streamlined sales model and improvements to its global supply chain, will help the company in "closing the efficiency gap between Lenovo and our competitors," Amelio noted.

"We will continue to combine cost competitiveness and efficient delivery capabilities with innovative products to drive increased market share," he added.

Lenovo's U.S. sales rose 4 percent for the full fiscal year, reversing a trend toward lower sales.

Lenovo lost the fourth place on the PC sales list last year to rival Asian firm Acer, which is based in Taiwan. The year also saw HP (NYSE: HPQ) rack up significant market share gains at the expense of many of its rivals.

Olympic Feat

Lenovo still relies on China for much of its revenue, getting 36 percent of its sales there.

Lenovo may be poised to launch a growth strategy that involves it rolling out more non-PC products in America and other markets, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times. In its home market, Lenovo sells a variety of consumer electronics but could launch a broader lineup that mirrors those of Dell (Nasdaq: DELL) and HP.

Lenovo will likely try to "bring its consumer expertise to bear on markets outside of China," Enderle commented. The company could face a difficult market as both HP and Dell have been revamped to compete in the low-cost market where Lenovo traditionally has fared best.

Lenovo is also hoping to boost its name recognition, using the fact that the 2008 summer Olympics will take place in its home city of Beijing to raise awareness of its brand. The company has signed on as a sponsor of the Olympics -- something IBM had done for decades -- and has also announced the formation of a new business unit to sell more machines to small businesses.

Lenovo seems to be gaining momentum, racking up its best growth in the first quarter since it bought the IBM line, noted Gartner (NYSE: IT) analyst Martin Reynolds.

"The low-cost producers based in Asia have enjoyed the growth in many markets," such as South America, where sales are outpacing the rest of the world," Reynolds told the E-Commerce Times. "The challenge now for Lenovo is to become more of a factor in the U.S. and Europe."