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Lenovo Flags Economic Concerns; Q1 Doubles

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China's Lenovo Group Ltd, the world's No.3 PC brand, joined rivals in flagging concerns about the impact on demand from the weak global economy and euro zone debt crisis, overshadowing a near doubling in first quarter profits.

Buoyed by strong sales in China and other emerging markets, Lenovo posted earnings which topped analysts' forecasts and increased its share of key markets, but its shares retreated almost 3 percent after an initial rise.

Lenovo faces the risk of slowing U.S. and European economies as it pushes into mobile devices with its Lepad tablet PC and Lephone smartphones to take on competitors such as Apple and Samsung Electronics.

"Although the worldwide PC market has shown marginal improvement and returned to growth during the fiscal quarter one, challenges to worldwide PC demand remain such as the pace of global economic recovery and the ongoing debt crisis in western Europe," Lenovo said in a statement.

On Tuesday, Dell, the world's No.2 PC maker, slashed its 2012 revenue forecast as an already weak outlook for technology spending this year worsened.

Shares of Dell and U.S. rival Hewlett-Packard Co tumbled on Wednesday on concerns the long-hoped for recovery in technology spending by corporates and governments may now not appear.

"Investors are understandably cautious about whether the environment could now get worse," RBC analyst Amit Daryanani wrote in a client note, regarding the outlook for Dell.

Top-ranked PC maker HP reports quarterly earnings later on Thursday, with analysts braced for a more cautious tone.

Analysts said Lenovo might feel little impact from weaker public spending, although a sluggish global economy could be a risk factor for some of its markets.

"I don't think Lenovo's exposure to the public sector is that big. Because of that, they are likely to be much better off in terms of growth," said Gokul Hariharan, an analyst at JPMorgan.

Lenovo, the most well-known Chinese PC brand, is trying to grab market share in its mainstay PC business, a sector whose growth has been stunted by handheld gadgets that allow users to make calls, surf the Internet and check emails.

Lenovo's Hong Kong-listed shares rose by as much as 3 percent on Thursday after it announced the results, but reversed gains to be trading 3 percent lower by 0330 GMT, underperforming a flat Hang Seng Index.

Net profit was $108.8 million for the quarter ended June, up from a revised $54.9 million a year earlier.

The market had expected net profit of $78.6 million, according to the average forecast of seven analysts polled by Thomson Reuters I/B/E/S. In the previous quarter ended March, Lenovo's net profit more than tripled to $42.1 million.

During the quarter, China made up 48 percent of total sales, while other emerging markets contributed about 18 percent with the rest coming from mature markets, according to its financial statement.

It is the top PC vendor in China with a market share of 31.7 percent, according to research firm IDC's April-June figures.

Globally, Lenovo's market share rose to 12.2 percent in April-June from 9.9 percent in the first three months of 2011.

In June, Lenovo acquired Germany's Medion AG, just months after it signed a joint venture deal with NEC Corp to sell laptops in Japan.

The Medion deal is the biggest for the company since it bought IBM's PC unit six years ago.