Lenovo's Q3 to soar, outperform in 2008

By Judy Hua

HONG KONG (Reuters) - Lenovo Group Ltd (0992.HK: Quote, Profile, Research, Stock Buzz) is set to post a doubling in quarterly earnings on strong demand from Asia, and the outlook benefits from the world's No.4 PC maker being least vulnerable among its rivals to a U.S. slowdown.

Despite worries of a sharp deceleration in technology spending, analysts say Lenovo, which bought IBM's loss-making PC arm in 2005, should fare better than Hewlett-Packard Co (HPQ.N: Quote, Profile, Research, Stock Buzz), Dell Inc (DELL.O: Quote, Profile, Research, Stock Buzz) and Acer (2353.TW: Quote, Profile, Research, Stock Buzz) because of its commanding presence in China and Asia.

"The biggest concern is the slowdown in the PC market this year, but Lenovo is best-positioned within the sector since it has the least exposure to the U.S. market," said CLSA analyst Jenny Lai. "Strong growth in China could offset the weakness in the U.S. and Europe."

Lai expects weakness in U.S. IT spending, as the United States teeters on the brink of its first recession in years, and a price war expected to hit PC makers in 2008. But demand should recover in 2009, she added.

China's largest PC maker is expected to post a profit of HK$1.01 billion (US$130 million) for the October-December period, according to five analysts surveyed by Reuters Estimates, more than double a US$57.7 million profit a year ago.

But that's slower than a tripling in net profit in the previous quarter, reflecting a winding down of IT spending across its main markets.

Lenovo racked up 22 percent growth in shipments globally in the October-December period as it rode the industry's peak buying season, but cut-throat competition ate away at margins. Rival Acer, which usurped Lenovo's global No. 3 spot in the same period, managed 60.3 percent growth.

Lenovo derived more than 40 percent of its revenue from China -- it commands a third of the world's top PC arena after the United States -- and 27 percent from the Americas in the fiscal second quarter ended September.