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China’s Lenovo inches closer to a tellurian tech title

Sun Jul 15, 2012 5:15pm EDT

HONG KONG (Reuters) – Lenovo Group Ltd is on lane to pass Hewlett-Packard Co as a world’s biggest PC builder by sales as shortly as this year, creation it a initial Chinese association to squeeze a tip mark globally in a record sector.

The ThinkPad maker’s arise highlights a allege of China’s record firms on a universe theatre in new years interjection to a mixed of assertive pricing, abroad acquisitions and their holding advantage of a fast-growing home market.

Analysts, however, also advise that Lenovo’s fast gains in marketplace share have come during a responsibility of distinction margins, while a association faces negligence enlargement in a marketplace for personal computers and tough rivals in a inscription PC space.

“It’s only a matter of time before Lenovo becomes No. 1 and it won’t be startling during all if it happens after this year,” pronounced Frederick Wong, executive executive during Avant Capital Management (Hong Kong) Ltd, that owns shares in Lenovo.

He added, however, that foe in a inscription zone and a diseased PC marketplace opinion could put vigour on Lenovo.

Lenovo, that became a world’s No. 2 PC businessman in a third entertain of 2011, had a 14.9 percent tellurian marketplace share in a April-June entertain this year, a small 0.6 commission indicate divided from HP’s 15.5 percent, according to investigate organisation IDC’s latest data. Figures from attention tracker Gartner uncover an even narrower gap, with Lenovo only 0.2 commission indicate from HP.

In another record sector, China’s Huawei Technologies Co Ltd, a world’s No.2 builder of telecom equipment, had been approaching to transcend Sweden’s Ericsson in 2011 sales. But delayed telecom spending, unbending foe in a handset marketplace and problems in drumming a large U.S. marketplace hold it back.


Lenovo’s arise has been helped by a squeeze of Germany’s Medion and a corner try with Japan’s NEC Corp final year, as good as a merger of IBM Corp’s PC business in 2005.

Investors have rewarded Lenovo for a marketplace share gains, promulgation a batch adult by around 16 percent this year and outpacing rivals HP, third-ranked Dell Inc and No. 4 Acer Inc, whose bonds have forsaken over a same period.

Lenovo now trades during a mixed of 12.5 times brazen earnings, a second-highest among a top-five PC makers and good above a 4.6 times mixed for HP, Thomson Reuters Starmine information showed.

But distinction margins have suffered. Lenovo had a 1.4 percent handling domain in a latest quarter, reduce than HP’s 7.4 percent and Dell’s 6.2 percent, a information showed.

“HP, Dell and Acer have switched lanes in a PC foe and upheld a rod to Lenovo in terms of focusing on sales rather than margins,” pronounced Dickie Chang, an researcher during IDC in Hong Kong.

Another risk is negligence enlargement in a PC marketplace as a tellurian economy, including Lenovo’s home territory and building China, eases.

China accounts for about 42 percent of Lenovo’s sum revenue, with a bulk of that entrance from PC sales.

Global PC conveyance enlargement was mostly prosaic in a second quarter, imprinting a seventh true entertain of low 0 to 5 percent enlargement for a industry.

“We sojourn certain on Lenovo’s marketplace share expansion, yet a comprehensive enlargement is but being negatively impacted by a slower market,” Jefferies pronounced in a report. Jefferies has an “underperform” rating on Lenovo with a cost aim of HK$5.70.

Overall PC direct could collect adult this year with a launch of Windows 8, yet a locate is that foe in a zone for inscription PCs — not Lenovo’s strongest area — will feverishness adult since a handling complement is designed to run on laptops and tablets.

Mizuho researcher Charles Park forecasts a PC marketplace will grow by only 3 percent this year.

Lenovo’s tablets, a LePads, will also face foe from new products, including a subsequent versions of Amazon.com Inc’s Kindle Fire and Apple Inc’s iPad, as good as Google Inc’s Nexus 7 and Microsoft Corp’s Surface.

(Additional stating by Vikram Subhedar; Editing by Anne Marie Roantree and Chris Gallagher)

Source: Article Source

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