A sharp rise in Lenovo Group Ltd.'s net profit for its fiscal first quarter is the latest sign that aggressive moves to cut costs and increase personal-computer sales world-wide are paying off.

Lenovo said net profit in the three months ended June rose to US$66.8 million from US$5.2 million a year earlier, while revenue increased 13% to US$3.93 billion from US$3.48 billion.

The company said its world-wide personal-computer shipments increased 22% in the quarter, faster than the industry's average growth of 13%. It didn't provide year-earlier figures.
 
President and Chief Executive William Amelio said during an online forum that Lenovo will continue to streamline its cost structure. Total operating expenses edged down to US$462 million from US$465 million.

In April, the company began cutting jobs and moving some U.S. jobs to cheaper locations in a bid to save US$100 million for the fiscal year ending March 2008. The affected workers represented about 5% of Lenovo's global work force.

Pretax profit, excluding restructuring costs of US$45 million, more than doubled to US$123 million. The company didn't provide an exact figure for the previous year.

The company earlier said it expected a pretax restructuring charge of about US$50 million to US$60 million in the current fiscal year, most of which would be taken in the first quarter.

Since Lenovo acquired International Business Machines Corp.'s PC division two years ago for US$1.25 billion, it has been aggressively cutting costs to be more competitive in the cutthroat PC industry.

Lenovo said its gross margin in the fiscal first quarter rose to 14.9% from 14.3%, on lower component costs.
 
"We recorded satisfactory gross margin in the first quarter. But gross margin is a function of a lot of things, including component costs and product prices," said Chief Financial Officer Wong Wai Ming, who declined to comment on margin trends going forward.

Analysts said the results were ahead of their expectations, and they are reviewing their target prices and ratings.

Goldman Sachs, however, warned that Lenovo's profitability in Europe, the Middle East and Africa, and the Asian-Pacific region seems to be weakening "despite top-line gains, implying fierce competition and greater margin pressure there."

Lenovo shares fell 6.3% to 5.10 Hong Kong dollars (65 U.S. cents) Thursday in Hong Kong, on profit-taking after having risen 15% since the beginning of July.

Lenovo said shipments of notebook computers rose 26% in its fiscal first quarter compared with the year-earlier period. Notebook sales totaled US$2.07 billion, or 53% of total revenue.

It said shipments to mainland China increased 30% in the quarter from a year earlier and accounted for US$1.53 billion, or 39%, of revenue.

Shipments to the U.S. rose 15%, as sales to large enterprises improved, and contributed US$1.15 billion, or 29%, of revenue. Shipments to Europe, the Middle East and Africa rose 22% and accounted for US$754.5 million, or 19%, of revenue.

(Photo:Baidu)