Top Chinese personal computer maker Lenovo Group Ltd posted a 6 percent rise in quarterly profit on Wednesday, topping forecasts, after including for the first time the struggling PC business bought in May from IBM.
The $1.25 billion purchase made Lenovo the world's third-largest PC maker, behind only Dell Inc and Hewlett-Packard Co, but some analysts are worried about the firm's ability to turn around the IBM assets.
Lenovo said on Wednesday that the former IBM business was profitable, and that the acquisition was already paying off, citing growth that outpaced the industry in the big emerging markets of China, India, Russia and Brazil.
"We are generating the anticipated benefits of the acquisition quickly, ahead of schedule. Customers are embracing the new Lenovo," new Chief Executive Stephen Ward, who joined from IBM, said in a statement.
After the deal closed in May, Ward sent a letter to employees saying he aimed to double Lenovo's profit within three years.
"Lenovo outpaced the PC industry in emerging markets, and we are focused on driving similar momentum in mature markets," Ward said on Wednesday.
The firm said it expects the merger to generate cost savings of about US$200 million a year.
Lenovo controls more than a quarter of China's PC market, the world's second-largest after the United States, and its landmark deal to acquire IBM's assets is part of a broader move by Chinese companies to look overseas for new growth opportunities.
Lenovo reported a net profit of HK$357 million ($45.94 million) for the quarter through June, compared with a profit of HK$336.8 million in the same period a year earlier, which did not include the IBM assets.
The results released on Wednesday included two months of contribution from the former IBM business.
Basic earnings per share fell by 8 percent to 4.12 Hong Kong cents as a result of dilution from issuing new shares to pay for the IBM deal.
Three analysts polled by Reuters had predicted an average first-quarter profit of HK$310 million, although they and others said forecasting would be difficult until they saw more information about the IBM assets.
First-quarter turnover more than tripled to HK$19.6 billion from HK$5.9 billion a year earlier, as Lenovo added IBM's sprawling global sales network, complementing its own position as China's dominant PC seller.
Its gross margin expanded to 15.3 percent, from 13.75 percent a year earlier.
Overall PC sales in China are expected to grow 13 percent from the 15.8 million units sold in 2004, market research firm IDC has said.
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