Netbook strategy fails to prop Lenovo revenues

Lenovo posted a greater quarterly net loss than in the previous three months as the world’s fourth-biggest PC vendor began restructuring and continued to suffer from weak demand for high-end products.

Lenovo has split its product groups into high- and low-end lines as part of a low-price strategy to increase sales worldwide.

That strategy has included releasing netbooks, and development of a new consumer goods line but a weak Indian market during the quarter canceled out gains for new netbooks in Asia, Lenovo said.

Lenovo posted a net loss of US$264 million for the quarter through March, down from a net profit of $140 million a year earlier. Revenue was $2.8 billion, down from $3.7 billion the year before.

Sales held up best in China, where Lenovo has refocused under restructuring plans first announced in January, company CFO Wong Wai Ming told reporters.

That contrasted with a “substantial sales decline” in other markets, where all of Lenovo’s operations recorded operating losses, Wong said.

The global economic downturn has bitten sharply into Lenovo’s high-end sales in the West and India. Quarterly PC shipments to the Americas fell 19 per cent year-over-year, while shipments to the Asia Pacific plummeted 32 per cent.

Lenovo also posted results for the full year through March. The firm’s fourth-quarter losses dragged it to an annual net loss of $226 million, down from a net profit of $484 million the year before. Sales were $14.9 billion, down from $16.4 billion.

Lenovo’s results showed the deepening impact of the global economic downturn. Its quarterly losses more than doubled from the previous three months, and sales were down one-fifth.

“We expect emerging markets including China to continue to recover faster than the rest of the world,” said Wong.

Netbooks will provide an important boost to sales, but Lenovo faces competing models from almost every other PC vendor, said Bryan Ma, an analyst at IDC.

Outside of China, Lenovo has been slow to cater products to consumer tastes, Ma said. “One of Lenovo’s weaker areas is on the consumer side, and today the market really is being saved by consumers, particularly with netbooks,” said Ma.

Lenovo’s fourth-quarter figures include $116 million in costs related to restructuring, which the firm expects to save it $300 million in the next fiscal year.

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