Profits stall at China's Lenovo

Profits at Chinese computer firm Lenovo have stood still amid slowing demand at home and stiffening competition.

The firm is in the international spotlight after last year signing a deal to buy the PC division of personal computer pioneer IBM. Lenovo's profit for the three months to December was HK$327m (US$42m; £22m), less than 1% up on the year before. Chinese PC sales have risen by a fifth in each of the past two years, but are now growing more slowly. The company is still by far the biggest player in China, with more than a quarter of the market. But Western firms such as Dell and Hewlett-Packard are also mounting a more solid fight for market share in China, and Lenovo's sales were down 3.7% by revenue to HK$6.31bn.

If the $1.75bn agreement Lenovo signed with IBM on 8 December goes through, it will mark the end of an era. IBM pioneered the desktop PC market in the early 1980s, although strategic mis-steps helped lose it its early dominance. In any case, margins in PC market are now wafer thin, and profits have been hard to come by for most vendors except direct-sales giant Dell. But investors have been less than impressed with Lenovo's move, designed to take it out of China and further onto the world stage. Its shares are down 20% since the announcement two months ago, largely because of the unprofitability of the unit it is buying. There have been rumours that the deal could be in trouble because US government agencies fear it could offer China opportunities for industrial espionage. The reports of the possibility of an investigation into the risk sent Lenovo's shares up 6% in late January.
