Who's Gaining Ground in the Global PC Wars?

By Jason Simpkins
Staff Writer

The personal computer industry is one of the most competitive in the world, with top guns Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL), battling for market share in the United States and abroad.

Moreover, margins for computer makers have come down dramatically, now hovering around 10%. And with wildly fluctuating prices and fast moving technology, computer makers keep inventories extremely low, adding to delivery pressures. After all, no vendor wants to be caught with a backlog of yesterday's machines.

Still the computer industry is booming. The burgeoning middle class populations in China and India have a ravenous appetite for PCs. And it's only likely to grow. So here's a look at two global titans nipping at the heels of HP and Dell, the number one and two world giants…

Lenovo: Organic Growth in Europe

Last week, China's Lenovo said that it was still determined to advance its European market share, despite the company's failure to acquire Packard Bell.

In August, Lenovo announced that it was in talks to acquire the Netherlands-based PC company. Shortly after the announcement, Taiwanese rival Acer bought Gateway (GTW). Gateway has first rights to buy Packard Bell through its holding company, and Acer has made no secret of its intentions to exercise that right. Now, Lenovo will be forced to relinquish a potential European foothold, but that doesn't mean the computer giant has given up.

"We have plans in Europe without Packard Bell, plans to do it organically," said Lenovo's chief executive William Amelio according to AFP. He went on to say that Lenovo remains"very interested" in Packard Bell, a company that has a strong presence in Britain, France, Belgium, Spain, Norway, and the Netherlands.

Some analysts have suggested that Lenovo might make such a generous offer to Packard Bell that Acer would be unable to match it. But, such a heavy acquisition could turn off investors. Amelio has acknowledged that there has been no further discourse with Packard Bell since negotiations broke off last month.

Lenovo is the world's third largest computer manufacturer according to the research firm Gartner. The company employs more than 20,000 people and has picked up steam since acquiring IBM's PC business in 2004. It captured 8% of the PC market in the second quarter of 2007, lagging behind H-P (HPQ) and Dell (DELL), but a step above Acer.

According to iSuppli, Lenovo shipped 4.9 million units in the second quarter of 2007. Acer shipped 4.2 million. In the first quarter it was Acer in the lead, shipping out 249,000 more units. But Lenovo's growth in the second quarter was particularly impressive. The company's shipments increased by 23%, outpacing HP, Dell, and Toshiba combined. Acer experienced a 0.2% drop.

Acer: Room to Grow

Acer's acquisition of Gateway and Packard Bell could afford the company as much as a 2.5% bump in market share. In an interview with French Daily Le Monde, Acer's president Gianfranco Lanci said the company's acquisition of Gateway would make the combined entity the third largest PC vendor in the United States. It's expected to corner 12% of the market. And, in addition to providing Acer with a stronger foothold in Europe, Packard Bell is expected to accelerate the company's growth in the office computer segment.

Lenovo can't afford to fall too far behind. Earlier this month the company announced it would begin selling laptops to U.S. consumers. It will also sell Lenovo brand laptops in Russia, France, and South Africa beginning in January 2008. Lenovo's primary customers outside of China have been businesses, but the company understands its future rests in the hands of the average consumer.

"The consumer market will be the main driver in the next few years," Company chairman Yang Yuanqing told Bloomberg News."We have almost no consumer market overseas now, and hope to expand that to about the same as for China."

In the first fiscal quarter, Lenovo's sales in mainland China, Taiwan, and Hong Kong totaled $1.5 billion, or 39% of the company's revenue. Revenue from the Americas was $1.1 billion or, 29%.

In a massive effort to push its brand name Lenovo has picked up its company sponsorship. Last October, the company signed a deal with the National Basketball Association making Lenovo the league's official PC partner. It was a big sponsor of the Winter Olympic Games in Turin, and figures to be an even bigger sponsor of the Summer Games in Beijing.

Both Looking to India for Growth

Right now, India is generating a lot of interest for PC makers. During the second quarter of 2007 the overall India PC market grew 22% year over year. Desktop PC shipments showed an 11.3% increase and notebook PC shipments jumped an astonishing 73% from last year.

In terms of notebook PC shipments alone, HP retained the lion share of the market with 40.4%. Lenovo and Dell came in second and third respectively. HP also held top position in India's overall market, taking up 22.2%. India-based HCL was second with 12.8% and Lenovo came in third with 10.3% of the highly coveted Indian market.

You'll note that Acer is nowhere to be found among those numbers. Acer noticed too. That's why it recently unveiled its new Acer Power Entra 451 PC, which will be sold exclusively in India. The computer is being pitched as a value-buy for the"common man."

According to Mr. S Rajendran, GM of Sales & Marketing for Acer India,"With the Acer Power Entra 451 we are able to reach a wider market. Now everyone can own a Desktop powered by an AMD processor without hurting the pocket."

We'll just have to wait and see whether or not the Indian consumer agrees…

Regardless of the computer's success Reuters has reported that the company expects revenue to grow 30% this year."We saw revenue growth of about 30% last year and this year will be about the same with our margins stable at 10-point-something percent," Gianfranco Lanci told a news conference in Madrid.

The Big Picture

Lenovo has 35% of China's total market share. The company is also the market leader in Asia, excluding Japan, capturing 20.8% of the market share in the first quarter, an increase from 19.7% the year previous, according to IDC.

IDC also said that Asia's PC market grew 22% in the second quarter. But it's a global competition, and Lenovo is struggling outside of Asia. The company should see its global market share advance marginally as a result of its publicity campaign, but only marginally. Its failure to acquire Packard Bell is a huge loss for the company.

Meanwhile, Acer's acquisition of Gateway and Packard Bell will go a long way to further its share of buoyant Western markets, but an inability to keep up with Lenovo in India and China could put the company at risk. As Acer makes more room for itself in the global market it must remain cognizant of the fact that its own neighborhood is about to explode with middle-class consumerism. It's beaten Lenovo at its own game once, but there is no time for the company to rest on its laurels.

Hewlett Packard and Dell are still the number one and two computer companies in the world. That fact remains unchanged regardless of the gains Lenovo and Acer have made. HP and Dell are doing the most business in the United States, which currently has the biggest and most profitable PC market. It is going to take a lot of work for foreign competition to dislodge them.

Also, HP and Dell have been pushing into China and India every bit as aggressively as Lenovo and Acer have been expanding outwards. In fact, earlier this month Dell announced that it will sell its latest PC lineup through China's largest electronics retailer, Gome Group. In the same breath the company said it would be advancing its products in Brazil and Mexico as well.

Both of these giants are battle-hardened veterans who have blood on their swords from the likes of IBM, Gateway, Packard Bell, even Apple. Lenovo and Acer may be able to exploit the booming economies of their native region, but the U.S. PC consumer isn't going anywhere and neither are Dell and HP.