Rising demand for PCs lifts Lenovo out of the red

Higher costs for memory chips and displays cut into the company's profit margin

PC maker Lenovo marked its return to profitability on Thursday but said higher component costs put a dent in results for its last fiscal year.

The Chinese PC maker reported a profit of US$129 million on revenue of $16.6 billion for the year to March 31. By comparison, the company reported a loss of $226 million on revenue of $14.9 billion during its previous fiscal year.

Lenovo said PC shipments rose 59 percent during its fiscal fourth quarter compared to the year earlier period. Speaking at a conference in Hong Kong to discuss the company's results, Lenovo CEO Yang Yuanqing called it "an ideal ending for the fiscal year."

"We have already achieved a complete turnaround," Yang said, crediting Lenovo's profitability to the restructuring of the company last year. As part of that restructuring, Yang replaced former CEO Bill Amelio and the company renewed its focus on China and other emerging markets.

Yang was generally upbeat that demand for PCs will remain strong. "The global economy is improving, but challenges remain," he said, noting the company is closely watching how the fiscal crisis in Greece affects the global economy.

While Lenovo highlighted strong unit shipment growth during the year, the company reported that its gross margin, a broad measure of profitability, slipped by 1.5 percentage points for the full year, dropping from 12.3 percent to 10.8 percent. Gross margin is the difference between revenue and the cost of goods sold, excluding operating expenses and other items such as taxes.

"This is largely due to high component prices," said Wong Wai Ming, Lenovo's chief financial officer, citing higher costs for memory chips and display panels, and a stronger U.S. dollar, as reasons for the company's lower gross margin.

"These factors will continue to be a challenge to improving our margin performance," he said.

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Sumner Lemon

IDG News Service
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