Lenovo Q3 beats view but warns of slowdown ahead

Lenovo Group Ltd, the world's No 4 PC brand, beat expectations by posting a 25 per cent rise in third-quarter net profit, its best result in more than two years, helped by a strengthening Chinese currency and lower component costs.

However, China's best-known technology brand cautioned that growth could slow amid economic uncertainty in the United States and Europe, a segment that has traditionally been a drag on its earnings.

"Worldwide PC market growth has further moderated in the quarter, and certain challenges in the global economy and the debt crisis in mature markets remain," it said in a statement.

Lenovo posted a net profit of $99.6 million for the October-December quarter, up from $79.5m a year earlier, and beating expectations for an $86.2m net profit from seven analysts polled by Thomson Reuters I/B/E/S.

The result come a day after Dell Inc reported forecast-beating earnings and margins on lower component costs and demand from companies replacing older technology.

Operating profit margin, a key performance indicator in assessing profitability, rose to 2.2 per cent from 1.9 per cent in the previous quarter, boosting earnings at one of China's best-known brands.

Such razor-thin margins have forced PC brands to look to acquisitions and alliances with rivals. Last month, Lenovo signed a $175m agreement with NEC Corp to jointly sell and develop PCs in Japan.

Part of the improvement in operating margin is likely to have come from an appreciating yuan, which rose about 1.5 per cent against the greenback in October-December. Supply gluts of LCD panels and other parts such as DRAM chips have also driven down costs for Lenovo and other PC brands.

China still accounted for the largest portion of Lenovo's sales, making up 46.2 per cent of revenue in the third quarter, down from 47 per cent in July-September.

Its mature-markets business, much of which it inherited from International Business Machines Corp, retained its profitable record for a second straight quarter, making up about 34.6 per cent of total sales with an operating profit margin of 1.1 per cent.

Lenovo saw the biggest jump in shipments among the top PC brands, up 21 per cent during the three months, according to research firm IDC. This was better than rivals Hewlett-Packard Co, Acer Inc and Dell, and about eight times the overall market's 2.7 per cent growth.

Lenovo shares gained 2.5 per cent in 2010, lagging a 5.3 per cent advance by the benchmark Hang Seng Index.