Top Chinese personal computer maker Lenovo Group Ltd posted an unexpected gain in quarterly profits yesterday, after buying IBM's struggling PC business in May.

The company reported a profit of HK$357 million (US$46 million) for the first financial quarter to June, a year-on-year rise of 6 percent.

Previously, market analysts had predicted that Lenovo's first quarter profit would be much lower than during the same period of last year, which stood at HK$336.8 million (US$43.35 million).

From April to June, the group's total sales jumped 234 percent year-on-year to HK$19.6 billion (US$2.4 billion).

Lenovo's CFO Ma Xuezheng said this was mainly a result of business growth in emerging markets, including China, India, Russia and Brazil, as well as the newly-acquired PC business from IBM.

She said that as the company issued stocks to help pay for the acquisition, its earnings per share fell by 8 percent to 4.12 HK cents.

"The board of directors are satisfied with the business results," said Yang Yuanqing, president of Lenovo Group.

IBM's PC business has started to yield profits from business integration in only two months, which indicates the acquisition was a right step for Lenovo's global expansion, he said.

The acquisition has resulted in cost savings of US$10 million during the past two months.

It is expected that that figure will be as much as US$200 million a year when business integration is fully completed.

"This is a good beginning for Lenovo," Yang Qingfeng, IT research director of the domestic research house Analysis International, told China Daily.

According to Yang, in general companies have fluctuations, or falls, after mergers and acquisitions.

"It is not easy to turn a loss-making business into a profitable one in a short period of time," he said.

After the acquisition, whether Lenovo could maintain IBM's customers had been widely debated.

The company interviewed 5,000 IBM customers, 93 to 95 percent of whom were either "very comfortable" or neutral about remaining with Lenovo, said company CEO Steve Ward.

He added that it increased sales to 400 of IBM's best customers during the first quarter.

Combined revenue from PCs in the quarter was about HK$18.3 billion (US$2.36 billion), 7 percent up on the same period of last year and 14 percent up on the previous quarter.

Notebook sales reached HK$9.3 billion (US$1.2 billion) and desktop sales HK$9.1 billion (US$1.17 billion).

Turnover of its mobile phone business rose 27 percent to HK$820 million (US$105.5 million) during the period.

Lenovo shares in Hong Kong closed 5.6 percent higher at HK$2.83 (36 US cents) yesterday.

With the US$1.25 billion purchase of IBM's PC business, Lenovo became the world's third-largest PC maker, after Dell and Hewlett-Packard Co.

(China Daily August 11, 2005)