Lenovo's gains in China compensate for weakened US sales

If the negative global economic trends truly are subsiding, as many analysts believe, then Lenovo may have sustained the worst the world could throw at it. It's scratched, and it's a little bruised, but it's not badly battered. Yesterday, the company posted a loss for the last quarter, but only the equivalent of $16 million USD (and that's just an "m"), on sales that declined nearly 18%.

Since Lenovo's profits had already been low in previous quarters, the company's gross profit decline of 37% may sound more dire than it truly is. As it turns out, cost-cutting enabled the company to shave $103 million in operating expenses in its fiscal first quarter over the same quarter the previous year, which very nearly kept the company in the black. And a 17% sales decline in the US -- a few ticks higher than the 13% analysts attribute to generally weakened PC demand -- was compensated for by a 15% sales gain in China, one tick higher than the number analysts attribute to China's continued economic ascent.

If Lenovo perceives any sort of mistake in its own strategy last quarter, it may be its push toward desktop computers -- a rapidly declining segment of the global PC market. In an effort to balance out its portfolio as well as increase its margins, Lenovo had been pushing its ThinkCentre brand. But with Lenovo's new IdeaCentre netbooks being treated as part of the notebook category, and with netbook popularity rising rapidly, ThinkCentre ended up being responsible for merely 34% of Lenovo's revenue.

Think about the meaning of that for a moment: The PC manufacturer that used to be IBM now generates two-thirds of its revenue from portable systems.

So even though the global PC pie is much smaller this year, Lenovo's gains in selling portable systems to China and emerging markets is responsible, the company says, for its highest global PC market share since IBM divested its PC interests in 2005.