Lenovo posts first operating loss in three years

With demand from enterprise customers dropping at the same time demand from consumers is waning, it is a very difficult economic situation for most computer makers. Dell and HP have been vocal about their methods for turning the falling profits, but so far, Lenovo has been comparatively quiet.

Today Lenovo announced its first quarterly loss in nearly three years. Bloomberg also reports that Lenovo CEO William Ameilo has resigned and will be replaced by former Lenovo CEO Yang Yuanqing. Yuanqing was previously the CEO of Lenovo from 2001 until 2005. In 2005, he was replaced by Ameilo and moved to the position of Lenovo chairman.

The vacated chairman spot left by Yuanqing will be filled by Liu Chuanzhi. Lenovo's loss for the quarter was $96.7 million, roughly three times what was predicted by analysts. Lenovo also posted a 20 percent decline in sales, further widening the gap between it, HP, and Acer in the important global sales rankings.

Atlantis Investment Management portfolio manager Renault Kam said, "All tech companies are under pressure, especially Lenovo, as they’ve spent a lot on building distribution in the U.S. and Europe. It’s [Lenovo] in deep water. They’re going to need a strong CEO with a clear strategy.”

Lenovo stock fell 2.7 percent in Hong Kong trading to close at HK$1.46 making the year to date stock decline 31 percent. Lenovo's stock price shrank by 70 percent last year. Lenovo has plans to turn around its sagging profits by focusing more on sales in its native China.

Sales in China, Taiwan, and Hong Kong fell 6.5 percent for Lenovo in the quarter compared to the same quarter from the previous year. Lenovo's revenue in the U.S. fell 22 percent over the quarter. The U.S. is Lenovo's second largest market behind China.

During a conference call Amelio said, "China remains our most important market. While the China PC market is now growing at a slower rate than the rest of world, we know this market will recover and return to robust growth."

The reason Lenovo wants to focus more on sales in China is that its home country was the only region to post an operating profit. The operating profit in China declined from $122 million the previous year to $97 million for the quarter.

Lenovo said in a statement, "The next several quarters will remain very challenging for Lenovo." The computer maker also said that it plans to adjust its business model to tap demand for lower cost products. Considering lower cost products in the current economy boils down to netbooks more netbook models should be coming from the firm.

Lenovo is expected to post another loss for its current quarter in the area of $62 million. The Chinese computer maker -- headquartered in Raleigh, North Carolina -- has seen its global market share drop from 7.5 percent in 2008 to 7.2 percent for the quarter. Part of Lenovo's effort to regain profitability includes layoffs. The company announced in January that it would be shedding 2,500 employees.

"Well, there may be a reason why they call them 'Mac' trucks! Windows machines will not be trucks." -- Microsoft CEO Steve Ballmer
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