Lenovo Group Ltd. it swung to a fiscal-first-quarter net profit from a year-earlier loss as growth in PC shipments made up for pressure on its margins since it shifted its focus toward emerg- ing markets and China, where it dominates, and lowerprice consumer products. But the Chinese PC maker, which bought International Business Machines Corp.'s PC business in 2005, warned that its focus on those segments will keep pressuring margins.

Lenovo's results, which slightly beat expectations, rein- force the view that the global PC industry is benefiting from stronger demand as consumers and corporations, which had cut back amid the global financial crisis, begin to spend on electronic gadgets again. But the firm's bottom line continues to be pressured by its focus on building its unit shipments and market share in other emerging markets like South- east Asia, India and Latin America as well as higher expenses after the company in January reacquired its mobile handset maker, Lenovo Mobile Communication Technology Ltd.

At the same time, Lenovo's strength in China has proved healthy for its sales growth at a time when demand in the U.S and Europe slowed. For the quarter ended June 30, Lenovo reported net profit of $54.86 million, compared with a net loss of $16.01 million a year earlier. Revenue rose 49.6% to $5.15 billion, boosted by strong growth in PC shipments. During the quarter, Lenovo's world-wide PC shipments grew 48.1% from a year earlier; outpacing the industry's growth rate of about 20.9 Lenovo said it expects gross margin would remain under pressure in the short term due to its business-mix shift toward emerging markets and toward products for consumers and small and medium-sized businesses. Gross margin in the quarter declined to 10.2% from 11.0% a year earlier. Lenovo expects its gross margin to stabilize around its current level and to improve over a longer period, Chief Financial Officer Wong Wai Ming said on a conference call with analysts and investors.

The company said it will continue to invest to drive shipment growth and market share in key emerging markets. Lenovo expects the China market to maintain moderate growth in the current quarter despite slowing consumption, Mr. Wong said. China accounted for about 48.7% of Lenovo's total sales in its most recent quarter. Mr. Wong also said Lenovo will look for merger-and-acquisition opportunities in PC- related areas to accelerate the company's growth. His declined to elaborate. The company said Lenovo Mobile showed strong growth as its first Smartphone launched in May. But a short- age of panel’s limited sales of the phone, called the LePhone, to 100,000 units in the quarter, Chief Executive Yang Yuanqing said. Lenovo expects to resolve the shortage issue in the near future and still aims to sell 1 million units within one year, Mr. Yang said.

Lenovo also plans to talk with cities in western China about building manufacturing plants in the region to add needed capacity.

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