Lenovo sees profit doubling in three years

The new chief of Lenovo Group Ltd, the world's number-three PC maker, aims to double profit within three years, defying investor doubts it can turn around the loss-making PC business it bought from IBM. Lenovo also expects to grab more market share and eventually overtake one or both of the world's top two PC makers, Dell Inc and Hewlett-Packard Co, the firm's new chief executive officer, Stephen Ward, said in a letter to his 19,000 employees. Ward, a former IBM executive, made the forecasts a week after Lenovo sealed its purchase of IBM's PC making arm for $1.25 billion, a spokeswoman said on May 10.
The spokeswoman did not specify the type of profit Ward, who took on the job as the deal was closed, was referring to.
"The new CEO issued the letter after the IBM deal closed, but Chinese employees didn't see it until after coming back to work from the long May 1 holiday," she said.
In February, Lenovo posted a profit of HK$327 million ($42 million) for its third quarter to end-December, virtually unchanged from HK$325 million a year earlier, amid stiff competition and slowing growth in China, where it holds about a quarter of the market.
Analysts, on average, expect the company to earn a profit of HK$1.15 billion for the year to end-March, according to Reuters Estimates.
They are expecting the company to report a profit of HK$1.21 billion in the current year to March 2006, and HK$1.47 billion the year after that - though some of those forecasts do not factor in the IBM purchase.
BNP Paribas analyst Marvin Lo said the profit-doubling goal could be achievable if Lenovo could keep warranty costs in check, and raise margins at the IBM business. He was less certain about the company's ability to overtake Dell or HP.
"In my assumptions, I don't expect much improvement in the top line for the PC division, so I wonder if they can really challenge the leading position of Dell or HP," he said.
Lenovo is among a rising number of Chinese companies making overseas acquisitions, scouring the globe for growth opportunities after years of breakneck expansion at home.