27 February 2020

Lenovo’s PC+ strategy making headway

The biggest message from Lenovo Group’s (00992.HK) latest quarterly report is that the firm’s so called PC+ strategy is making headway.

Although the Chinese firm beat Hewlett-Packard last year to become the world’s largest personal computer maker, the PC market as a whole has been shrinking. Steering the company into a new growth zone is therefore a top priority. The “plus” would come in form of handsets, tablets and smart TVs.

Lenovo’s numbers speak for themselves. The company’s worldwide smartphone shipments were up 47 percent at 13.9 million units in the three months ended December, while the tablet business saw even more stunning growth with shipments surging three-fold to 3.4 million units from a year before.

Combined unit sales of smartphone and tablets amount to 17.3 million, surpassing the firm’s personal computer sales volume of 15.3 million units in the period.

Growth has been particularly strong in its two biggest markets, China and EMEA (Europe, Middle East, and Africa) region. However, Lenovo’s nine-month revenue from these mobile devices totaled just US$4.4 billion, making up only about 15 percent of its overall revenue.

A deal to purchase Motorola Mobility from Google for US$2.91 billion last month will be one important step to inject more momentum into the mobile business.

But as of now, the market appears to have serious doubts as to whether Lenovo can bring Motorola back to life, judging by the steep slide in the Chinese firm’s share price in recent sessions.

Motorola recorded a net loss of US$928 million in 2013. Observers fear the acquisition will eat away Lenovo’s handset segment profit, rather than enhance it. Lenovo’s chairman and CEO Yang Yuanqing {楊元慶} has admitted the negative near-term impact. But he is confident of a swift turnaround of the business in 3-5 quarters.

Ken Hui, an analyst from Jefferies & Co., has estimated that Motorola needs to double its sales in order to break even.

Yang said Motorola’s phone business will catapult Lenovo’s handset scale; and he expects savings from material procurement and elsewhere in the supply chain to flow through pretty quickly.

Lenovo will reintroduce the Motorola brand in China, Europe and other emerging markets, Yang added. According to a JP Morgan report, Moto G handsets’ recent re-launch in India through online retailer Flipkart has seen good traction. So shipping out new products in markets where the brand still has a decent image could work.

Lenovo officials also told the National Business Daily that the turnaround plan will center on tapping into the distribution channels of 50 major carriers to help the group’s handset business quickly expand its presence in the US and Europe.

After the deal, Lenovo’s smartphone market share is about 6 percent, ranking behind Samsung (32 percent) and Apple (15 percent).

Many people point out that the PC market is dying, with global shipments shrinking a double-digit percentage last year, the largest contraction in PC history.

But according to Yang, the definition of a PC should evolve with time. Yang once told Businessweek that everything was mono-function before. “You used PC for computing and phone for communicating. But now, every device from PC to TV, all possess storage, computing and communicating function.” To Lenovo, these kinds of devices are all just personal computers at heart.

Going by that concept, whatever device people use to communicate, calculate or surf the net, it is PC to Lenovo, and the company’s core business.

– Contact the writer at [email protected]



EJ Insight writer