PC manufacturer Lenovo on Thursday reported a huge jump in third-quarter profits as sales increased 20 percent to $4.3 billion compared with the same quarter in 2006.
The company also is accelerating plans to develop its own brand and cut ties with IBM. Lenovo bought IBM’s PC division, which had been based in the Triangle, two years ago. Part of the deal enabled Lenovo to keep using IBM logos on its machines, but Lenovo had already started removing them on laptops.
"One important sign of (our) progress is our decision to completely transition our Think products from the IBM brand to the Lenovo brand two years earlier than planned," Chief Executive Officer William Amelio said in a statement.
Lenovo, which has its headquarters in Morrisville but trades it stock in Hong Kong, said profits increased to $1.12 per share on profits of $105 million.
Profits were 43 cents a share on earnings of $38 million a year earlier.
The company reported growth in sales in all its geographic markets.
Ezra Gottheil, an analyst with Computer Business Quarterly and Technology Business Research (TBR), was impressed by Lenovo’s showing.
“Lenovo continues to consolidate its position as a major global business PC vendor,” he headlined a research note. “Lenovo experienced a strong quarter, the third consecutive quarter of increasing revenue and operating profit and the fourth consecutive quarter of increasing revenue growth.”
While the PC maker is the market-share leader in China, where the company was launched, it has slowly advanced its brand and sales worldwide in the two years after purchasing IBM’s personal computer division.
“Lenovo outpaced the healthy worldwide PC market, reporting a 0.5% increase in global market share, to 8.2% in 3Q07,” Gottheil noted. He praised Lenovo’s growing channel market program of selling through resellers. The “Transaction Model” has been used in China and is being expanded worldwide, Gottheil noted, with a 38 percent year-over-year increase in sales and a 70 percent increase in laptop sales.
As sales increased in all markets, so did profits, Gottheil said.
“Every geography was profitable, and while China continues to lead in operating profit, this quarter [Europe Middle East Africa] generated a 5.0% operating margin, as compared [with] China’s 5.6%,” he wrote.
Due to price pressure, the margin in the Americas did dip to 2.8 percent from 3.4 percent in the second quarter, Gottheil added.
“Despite competitive pricing, Lenovo’s worldwide average selling price decreased only 0.6% from one year ago because, TBR believes, customers are buying computers with more memory and disk space and larger screens,” Gottheil wrote.