UPDATE 2-China's Lenovo Q3 beats consensus; to sell mobile arm

(Adds details, sale of cellular arm, company's comment)

By Judy Hua and Edwin Chan

HONG KONG, Jan 31 (Reuters) - Lenovo Group Ltd (0992.HK) beat expectations by nearly tripling quarterly earnings, riding strong demand for PCs in Asia, but the world's No.4 PC maker faces a tough 2008 as a U.S. slowdown threatens to curb spending.

Lenovo, which commands a third of the booming Chinese market and leads Asia in computer sales, is making inroads into a fiercely fought, unfamiliar U.S. consumer arena even as worries mount of a sharp deceleration in IT spending there.

"That's the risk. But if emerging markets continue to be robust, hopefully that should offset any weakness," said Bear Stearns analyst Jack Tse, maintaining an "outperform" rating on the stock. "China hasn't seen any slowdown yet."

Analysts say Lenovo, which bought IBM's (IBM.N) loss-making PC arm in 2005, should fare better than larger rivals Hewlett-Packard Co (HPQ.N), Dell (DELL.O) and Acer (2353.TW) because of its dominant Asian presence.

Lenovo is expected to post full-year net profit of HK$2.8 billion, more than twice last year's US$161 million, according to Reuters Estimates.

Trading in its shares was suspended on Thursday morning. The firm said it applied to have them resume trading later.

The firm, which derived 40 percent of its revenue from greater China, posted October-December net profit of US$171.75 million versus US$57.7 million a year ago.

That trumped expectations for HK$1.01 billion ($130 million), the mean forecast of five analysts surveyed by Reuters Estimates. Gross profit margins edged higher despite cut-throat global competition, to 15.2 percent from 13.5 percent a year ago.

Facing a potentially difficult year, Lenovo said on Thursday it agreed to sell its cellphone business -- which saw shipments drop 31 percent in the quarter -- for US$100 million, allowing it to focus on its main PC arm.

Analysts expect U.S. technology spending to weaken as the world's largest economy teeters on the brink of recession, and a consequent price war could hit PC makers in 2008. But demand should bounce back in 2009, they say.

"This will be a key year for Lenovo, as 2008 will mark the first year without IBM branding on our products," CEO William Amelio said in a statement. "We believe 2008 will be a breakout year for the Lenovo brand on the world stage."

For a full earnings statement, please click here 131010.pdf CONSUMER FORAYS

Lenovo racked up 22 percent growth in shipments globally in October-December as it rode the industry's peak buying season, but intense competition is expected to pressure margins.

Acer, which usurped Lenovo's global No.3 spot in the same period, managed 60.3 percent growth.