Lenovo Group Ltd. reported a 12 percent decline in profit for the three months ended March 31, its last full quarter before closing on its purchase of International Business Machines Corp.'s personal-computer operations.
Lenovo executives said that with the acquisition complete, the company initially will focus on cost savings and integration rather than market share.
The results for Lenovo's fiscal fourth quarter offer few clues to the company's future, because the IBM business -- which made up the bulk of a division that reported $2.7 billion in revenue for IBM during the same period -- is about four times the size of the pre-deal Lenovo.
But the drop in profit does illustrate some vulnerability in Lenovo's dominance in China, where the company's 25 percent market share is twice the 12 percent share of its closest rival, Founder Technology Group. Lenovo's corporate and government PC operation, its biggest business, experienced a 12 percent drop in revenue and a 27 percent decline in operating income in the quarter, typically the slowest of the year for the segment.
Lenovo attributed those declines to efforts by the Chinese government to rein in economic growth. Lenovo's cell phone unit also continued to lose money, though at a slower rate than before, as it cracked the top 10 for sales in China's crowded market.
The company said it earned $21.3 million in the quarter, down from analyst expectations.
After the IBM deal, Lenovo moved its headquarters from Beijing to Purchase, N.Y. Its stock is traded on the Hong Kong exchange.
Lenovo's shares Wednesday ended down 3 percent on the news, 11 percent below their pre-deal level.
Analysts expressed more interest in the outlook for the combined company than in the last results of pre-IBM Lenovo, though Lenovo's top executives declined to discuss the company's direction in specific terms. Instead, Lenovo's new chief executive officer, former IBM PC division chief Stephen M. Ward Jr., described a three-step plan to meet existing agreements with customers, build global recognition for the Lenovo name and look for growth in selected market segments he didn't identify.
"In the near period, I'm not worried about market share," Ward said. "The No.1 priority is to deliver on commitments to customers, do the [corporate] integration and build our competitiveness."
In the weeks after the agreement in early December to buy the unprofitable IBM PC business for $1.25 billion, Lenovo's shares tumbled 20 percent. Investors worried the company might experience a considerable period in the red before it could turn around the IBM operation. The shares recovered somewhat in March and April after three private-equity firms stepped in to shoulder some of the acquisition costs and help manage the company.
Lenovo closed the IBM acquisition on May 1, so its April-to-June results will include two months of the IBM operation's performance.
In addition to the economic restraints imposed by the Chinese government, Lenovo executives said an increasing number of business customers in China are using sophisticated auction techniques for bulk PC purchases that its sales team is still trying to master.
Lenovo fared better in consumer PCs, with sales up 19 percent and operating profit up 1.5 percent, as it expanded production of low-priced machines that appealed to lower-income shoppers in China's smaller cities and rural areas.
For the full fiscal year, net profit rose 6.4 percent while revenue fell 2.7 percent.
Chief executive Stephen M. Ward Jr. says Lenovo will focus on improving the business, not on market share.