BEIJING --Hong Kong shares saw welcome gains Friday, rising 1.3% to 15,895 on the Hang Seng and 1.4% to 1614 on the Shanghai Composite. But after a week of jittery selling, the market was still down 2.6% from last Friday.

On the pink sheets in New York Thursday, investors took 3% off shares of

Lenovo

, which closed at $6.45 after an earnings disappointment.

Tencent Holdings

(TCEHF)

, which operates the most popular instant message service in China, popped 19.8% to $2.30 after upside surprises in its latest quarter, and

The9

(NCTY) - Get Report

tumbled 13% to $23.72 after its underwhelming earnings report.

As for Lenovo, sentiment on the Street was that shares got off easy. Expectations were already low heading into its earnings report.

In the most recent quarter ending in March, the company took a $70 million (U.S.) restructuring charge, resulting in a quarterly loss of $116 million. Sales of $3.1 billion were a little light, and analysts complained about Lenovo's high operating expenses.

"At the beginning, let's say two or three quarters ago, people could kind of forgive Lenovo" for weak results. No more, groused one Hong Kong tech analyst, who has a neutral rating on the stock. Citing his bank's disclosure policies, he declined to give his name.

Yet it may be a mistake to underestimate Lenovo. Founded in Beijing under the name Legend, it started selling its own computer products in China in 1990.

Granted, it's been a tumultuous year since Lenovo closed on its $1.8 billion acquisition of

IBM's

(IBM) - Get Report

PC business last May. In December 2005 Lenovo kicked out its CEO and replaced him with Bill Amelio, previously head of Dell's Asia operations. This March brought news of a major restructuring, including laying off 5% of the workforce or about 1,000 people.

Lenovo shares rose leading up to the appointment of Amelio, then peaked and have been drifting slowly downward ever since (call it the "show me the money" effect). Shares are now about flat with their year-ago levels.

But the market may be too pessimistic on this one.

By all accounts, Lenovo's new CEO seems highly focused on restructuring and an aggressive push into the small and medium business market. It doesn't hurt that he was previously a top manager at Dell, a corporate culture famously obsessed with cost-cutting.

"The key here is that Lenovo's cost structure is not that competitive," says Mark Po, an analyst at UOB Kay Hian in Hong Kong. If Amelio can improve matters on that front, he thinks the shares will look a lot more appealing.

Another point in Lenovo's favor: it claims a hefty share of two of the fastest-growing big PC markets, China and India, which are expected to see PC shipments grow 16% and 31%, respectively, in 2006.

Last year Lenovo was No. 1 in China PC shipments with 33% share, far ahead of No. 2-ranked Founder's 12%, according to IDC.

In 2005, half of all Lenovo's PCs sold into the China market.

Lenovo has also quietly established a leading position in India, where it ranks third, behind

Hewlett-Packard

(HPQ) - Get Report

and local vendor HCL.

Lenovo is slowly building its name. With the PC acquisition, it gained the right to use IBM's brand for the next five years. But in a mark of growing assertiveness, it's started to display its own name more prominently in ads for ThinkPad, the well-known notebook brand inherited from IBM.

"Obviously there have been a lot of integration challenges from the operational and branding perspectives, but all things considered, I'm actually rather impressed with the way they've been able to move ahead and get their brand name out there, at least on the business side," says Bryan Ma, IDC's associate director of PC research in Singapore. Lenovo will have a tougher time raising brand awareness among consumers, he adds, though its sponsorship of the 2005 winter Olympics likely helped.

Po, who still has a neutral rating on the stock, says he doesn't think it's time to buy yet. There's been analyst buzz that the company may have lost some share in the first quarter, though he says that may merely be a seasonal effect.

The bottom line: he believes Lenovo could have some positive surprises in store down the line. In six to nine months, it may turn out to be a turnaround story.

Separately, Internet outfit Tencent won analyst kudos after delivering upside for the first quarter of 2006.

Tencent makes most of its money from value-added services on the Internet and mobile phones, with a small portion of revenue coming from online advertising. Its flagship product QQ, an instant messaging service, has made huge inroads among young Chinese. In the latest quarter, the company claimed 531 million registered IM user accounts, up 8% from the prior quarter.Though QQ is free to use, Tencent has managed to tack on lots of games and quirky services for a fee.

One example: QQPet, which lets users raise online "pets." At the outset, QQ gives a pet owner enough virtual money to feed and care for the pet (typically a penguin, QQ's mascot) until it's old enough to start "working" and earning its keep. But by then, the owner has often grown sufficiently enamored of said pet that he or she will buy it gewgaws (clothes, furniture) using real-life yuan.

In the latest quarter, Tencent's quarterly revenue of $80.3 million rose 115% from the prior year. Net profit of $31.1 million increased 158% from a year ago.

In a research note, Lu Sun, head of China telecom and Internet research at Lehman, said revenue and EPS beat the firm's above-consensus forecast by 28% and 70%, respectively.

Sun said revenue quality and predictability have improved as Internet value-added services have come to account for an increasing share of Tencent's revenue, now 68%, relative to wireless value-added services, at 25%. (With the former, Tencent doesn't have to share revenue with anyone; with the latter, part of its sales go to the mobile operators).

Tencent "has started to harvest the fruits of its multi-year investment in the QQ community and IVAS/gaming in the first quarter of 2006," Sun wrote.