thinkpad.jpgMore bad news from Lenovo, the HK-based PC maker, which was once seen as the poster-child for a new wave of Chinese multinationals poised to take on the west. Worldwide PC shipments dropped 8.2% year-on-year in the first three months of this year, while the market as a whole only fell 7%. Consolidated sales for the period, its fourth fiscal quarter, fell by more than a quarter to $2.8bn, while gross profit declined 49%.

Results for the 2009 fiscal year are no better. Restructuring charges pushed it into a pre-tax loss of $188m and while its PC shipments grew 2.2%, tumbling average prices meant that consolidated sales from continuing operations dropped 8.9% , while its gross profit margin for the fiscal year slumped to 11.9% from 15% earlier.

Lenovo's China business performed relatively well — it strengthened its lead to take a 26.7% market share — but the strategically important US market has turned into disaster zone for the company. Lenovo acquired IBM's PC business in 2005 precisely to gain access to the US corporate market through the Thinkpad notebook line, which had built a strong brand loyalty under IBM and is the largest revenue generator for Lenovo, contributing 60% of total sales.

But those all-important US corporate customers appear to be deserting Lenovo's Thinkpad notebooks as shipments to the Americas region — Lenovo does not break out North and South America — slumped 19% during Q4.

Commenting on the results, Lenovo Chairman Liu Chuanzhi, said:

The past two quarters have been a particularly challenging time in our industry worldwide, and we took some significant steps to get our business back on the right path. We remain committed to growing our business profitably worldwide, and while our performance in the fourth fiscal quarter did not meet our expectations, we are confident that we have the right pieces in place to hit our financial targets and be ready to take advantage as economic conditions improve.”

One of the founders of Lenovo, Mr Liu came back as chairman three months ago as part of a boardroom purge that saw Bill Amelio, its American chief executive replaced with Yang Yuanqing, his predecessor. Analyst saw the moves as a tacit admission that Lenovo under Amelio had failed to built a global business around the Thinkpad brand.

Lenovo has been put into the frame as a possible suitor for Sun Microsystems' hardware business. Software giant Oracle is acquiring Sun but is only interested in Sun's software products and, once the acquisition is complete, is widely expected to quickly dispose of Sun's hardware operations which consists of high-end servers.

But with Lenovo losing money and apparently incapable of turning around its PC business, its management probably does not have the stomach to take on another US acquisition or enter a market — high-end servers — where it has no real experience.

More on Lenovo's troubles in this post.

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