Integration issues will take centre stage on Wednesday for Lenovo Group Ltd, as China's top personal computer maker releases its first quarterly results since its landmark purchase of IBM's PC business.
The handful of analysts that prepared forecasts for Lenovo were split on whether the IBM assets would help or hurt the company's bottom line for its fiscal first quarter ended June.
Lenovo completed its $1.25 billion purchase of the IBM unit in May, in a deal that created the world's third-largest PC maker after Dell and Hewlett-Packard
Five analysts polled by Reuters said they expected Lenovo's core China business to post a modest year-on-year profit gain when the company reports its results.
But they were in less agreement on the IBM business, with two predicting that part of the business would cause Lenovo to post a year-on-year profit decline, while one said the IBM unit could actually boost profits.
Three analysts that gave estimates said that, on average, Lenovo would post a fiscal first quarter profit of HK$310 million (US$40 million), compared with $337 million the year before.
Most company watchers will be looking for word of progress in Lenovo's integration of IBM's sprawling global PC business, said Pauline Lau, an analyst at Core Pacific Yamaichi.
"We will see from the results how well they are integrating from the acquisition and how well they can do," she said. "In the early stage of the integration, management doesn't know a lot of things. It depends on how fast they can integrate."
Shortly after the deal was completed in May, Stephen Ward, Lenovo's new chief executive who formerly worked for IBM, sent a letter to employees saying he aimed to double Lenovo's profit within three years.
Lenovo's home China market is the world's second largest for PCs, with sales expected to climb 13 percent this year from the 15.8 million units sold in 2004, according to IDC. But most analysts believe Lenovo is unlikely to expand its China share. Last year it enjoyed a commanding 26 percent of its home market - a figure that would have risen to 32 percent with the inclusion of IBM.
Most observers believe Lenovo's share in China is likely to stagnate or even fall as it faces new threats from international players Dell and Hewlett-Packard.
In response to those prospects, Lenovo purchased IBM's struggling PC assets, instantly gaining a major brand name and presence on the global stage.
Analysts and industry watchers have gone hot and cold on the deal since it was first announced in December, applauding Lenovo for its attempt to expand abroad while also worrying about its ability to turn the assets around.
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