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Lenovo beats expectations on China strength

The world's No. 4 PC brand, Lenovo reported a smaller-than-expected first-quarter loss on Thursday, thanks to China's massive stimulus package and further boosting hopes of a rebound.

Lenovo said it made a net loss of $16 million in the April-June quarter, its third straight quarterly loss but better than market expectations for a $54 million loss and narrowing from the previous quarter's $264 million loss.

“As the global economy remains uncertain, enterprise customers are still conservative about PC spending,” Lenovo said in a statement filed to the Hong Kong stock exchange.

“Lenovo will leverage its well-established core strengths in China and continue to invest in the market to further expand its leadership and profitability.”

Analysts say Lenovo has been worse hit than rivals such as Acer and HP in the current downturn because of its reliance on corporate spending, stemming from its purchase of IBM's laptop PC arm in 2004.

Revenue fell more than 17% from the same period last year to $3.46 billion, as tech spending plunged as a result of the global downturn, and it was further hit by rapidly declining prices amid the growing popularity of low-cost netbook PCs.

China accounted for about 48% of the company's sales in the last quarter, which saw a 14% increase in sales from 2008, as the company turned its focus back to its traditional stronghold of China and other emerging markets.

Optimism that Lenovo would be able to bank on that leadership position to ride out the current downturn has pushed its shares up more than 80% this year, compared with a 40% advance on the benchmark Hang Seng index.

The company has been one of the biggest beneficiaries of China's move to encourage consumer spending, with almost half of all computers sold under a rural subsidy program in the first six months of this year carrying its brand name.

In contrast, bigger global players such as HP and Acer took less than one% of sales under the program, while Dell and Asustek didn't sell a single PC.

Lenovo also managed to grow its share of the global PC market in the April-June quarter by 0.5%age points to 8.7%, research firm IDC said, reversing consecutive quarters of ceding market share.

The PC sector has been showing early signs of a recovery in recent months, with shipments in the second quarter of this year falling less than expected, and chipmaker Intel declaring that the worst was over for the industry.

The company announced the results before the Hong Kong stock exchange opened for trade on Thursday. Its shares were down 7.12% on Wednesday, lagging a 1.45% decline on the main board. (Reuters)