Lenovo buys and diversifies to outshine PC rivals

  • TECH
  • Thursday, 23 May 2013

WELL POISED: Lenovo Group Ltd's bold acquisitions in its flagship PC business, a foray into mobile gadgets, and a relatively light debt load are setting it apart from PC rivals as industry shipments take their steepest fall in decades. - Reuters

HONG KONG: Lenovo Group Ltd's bold acquisitions in its flagship PC business, a foray into mobile gadgets, and a relatively light debt load are setting it apart from PC rivals as industry shipments take their steepest fall in decades.

Lenovo, a sliver away from unseating Hewlett-Packard Co as the world's top PC maker by shipments, is expected on Thursday to post a two-thirds rise in quarterly profit, its fastest in 1-1/2 years, according to analysts' estimates.

"They have been aggressive in acquiring several distributors in different regions such as Brazil, Europe and Japan over the past few years, so that basically gave them better distribution, as well as gains in market share," said Warren Lau, an analyst at Maybank Kim Eng Securities in Hong Kong.

The Chinese PC maker's net profit is expected to hit US$110mil (RM333.96mil) in the quarter ended March, up from US$66.8mil (RM202.8mil) a year earlier, based on Reuters calculations using unaudited nine-month financial data.

Lenovo's full-year net profit was estimated at US$618.2mil (RM1.87bil) in a poll of 31 analysts by Thomson Reuters I/B/E/S/, up from US$472.99mil (RM1.43bil) a year ago.

Research firm IDC said global PC shipments fell 13.9% year-on-year in the first quarter of 2013, the biggest decline since it began tracking the market on a quarterly basis in 1994, as consumers switched to mobile computing and Windows 8 sales fell short of expectations.

With shipments unchanged in the first quarter, Lenovo is outstripping other vendors. PC shipments from HP, Dell Inc, Acer Inc and Asustek Computer Inc fell by 11-33% during the same period, IDC said.

The latest IDC data showed that Lenovo's market share was 15.3%, just 0.4% points lower than HP.

Lenovo shares far outperformed those of its rivals last year. This year Lenovo, up 3%, is still beating Acer.

Dell and HP have staged strong recoveries, but Lenovo's quarterly net profit has risen consistently over the past few years. By contrast, HP's net profit was down 16% and Dell's was down 79.5% year-on-year, according to the companies' latest quarterly financial results.

Strategic buys

Lenovo has spent heavily over the past few years to strengthen its PC business, with purchases such as Brazilian electronics maker CCE last year, Germany's Medion in 2011 and IBM's PC business in 2005.

Its slew of acquisitions has also sparked market talk that it might be interested in IBM Corp's server business, as well as handset makers Research In Motion Ltd and Nokia Oyj.

Lenovo has declined to comment on the rumours.

Lenovo has cash totalling US$4.5bil (RM13.66bil), vastly outweighing debt of US$423mil (RM1.28bil), and giving it the muscle for more buyouts.

HP and Dell have total debt of US$28.2bil (RM85.61bil) and US$7.2bil (RM21.85bil) respectively, compared with their cash balances of US$12.6bil (RM38.25bil) and US$10.9bil (RM33bil).

"We expect Lenovo to remain acquisitive as it is hungry for growth and so despite high cash balances they will not hike the dividend," said Jefferies technology analyst Ken Hui.

The Beijing-based company has shed its staid image as the maker of all-business ThinkPads, and now churns out multi-coloured IdeaPad Yoga convertible ultrabooks which have helped build its brand in China and beyond.

Though newer to smartphones than to its core PC business, Lenovo is the No 2 smartphone vendor in China, a success it hopes to duplicate in other emerging markets including Russia and India, where competition from Samsung Electronics Co Ltd, Apple Inc and others is fierce.

"They are in the right niche markets and hitting the right segments at the right price points. But this is not sustainable in the long run unless the mobility business steps up," said a Hong Kong-based technology banker. - Reuters

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