HONG KONG (Reuters) - Shares in Lenovo <0992.HK>, which bought IBM's ailing personal computer business in 2005, dived more than 14 percent on Wednesday after a broker cut the Chinese firm to sell on growing fears of a U.S. recession.
By Judy Hua
HONG KONG (Reuters) - Shares in Lenovo <0992.HK>, which bought IBM's ailing personal computer business in 2005, dived more than 14 percent on Wednesday after a broker cut the Chinese firm to sell on growing fears of a U.S. recession.
The fall, which wiped $1 billion off its market capitalization, brought the world's No. 4 PC maker in line with larger rivals Hewlett Packard <HPQ.N>, Dell <DELL.O> and Acer <2353.TW>, whose shares have plunged 15 percent since the start of 2008 on fears that consumers and companies may cut back on their technology spending.
CLSA, the Asia-brokerage arm of French lender Credit Agricole <CAGR.PA> downgraded Lenovo to sell from outperform, citing waning spending from both consumers and corporations as the United States teeters on the brink of what some predict will be its first recession in years.
!ADVERTISEMENT!"Lenovo is catching up with its global peers," Cazenove analyst Zhao Xin said of the broader PC stocks selldown. "The main reason behind this is worries of a U.S. recession, which will result in less IT spending."
Despite the brewing concern, Lenovo Chairman Yang Yuanqing told Reuters in Las Vegas that the company was insulated from a U.S. slowdown because of its lower exposure to that country relative to its rivals.
Some analysts agreed, saying the firm's overwhelming dominance in China -- it controls a third of the world's largest PC arena after the United States -- would shield it somewhat from an expected drop in global IT spending.
"I'd say Lenovo is better positioned and more defensive than its counterparts, as its main market is China," JP Morgan's Charles Guo said.
Shares in Lenovo, which has fallen 35 percent since November, dipped to a trough of HK$5.64 in the morning before paring some losses in afternoon trade. It still trades at about 21 times forecast earnings, versus HP's 13.5 and Dell's 15.5.
OVER-REACTING
"The market might have over-reacted," Cazenove's Zhao said. "Among all the major PC makers, Lenovo has the least exposure to the U.S. market. If IT spending in U.S. corporates slows down, the most affected products will be high-end servers, which Lenovo has less exposure to."
Lenovo introduced its first consumer computers in the United States this month, trying to cement its footprint in a market it entered in 2005 with the US$1.25 billion IBM deal.
The unveiling of three notebook computers with advanced features is part of an expansion by traditionally corporate- and enterprise-focused Lenovo into the global consumer PC market.
The company now plans to sell its new consumer computers in France, Russia, South Africa, India, Australia, Singapore and Malaysia, among other markets.
Lenovo -- one of a handful of Chinese firms trying to forge a global brand -- ranked No. 3 perch globally with 8.2 percent of worldwide shipments in the third quarter, while Acer followed with an 8.1 percent market share, according to researcher IDC.
But Acer may have leap-frogged Lenovo after it bought Gateway Inc for $710 million.
Investors are now waiting to see whether Lenovo's global consumer push will depress margins. Some analysts even cautioned of signs of weakness on its own home turf, as newly enacted labor laws and a planned advertising blitz this year inflate costs.
"With 45 percent of overseas revenue from commercial segments, the slow-down of IT spending is a risk to the 2008 outlook," CLSA's Jenny Lai said.
"Meanwhile, labor and marketing expenses are trending upwards in light of wage inflation, implementation of a new labor law and marketing program activity ahead of the 2008 Beijing Olympics."
(Additional reporting by Vinicy Chan, editing by Edwin Chan and Jean Yoon)
