Lenovo Strengthens its Status as a Global Brand with Strong Sales in China and Europe

By Jason Simpkins
Associate Editor

Lenovo Group Ltd. (OTC: LNVGY) may be the world's fourth-largest PC vendor, but strong earnings, a fast-growing home market in China, global expansion, and the company's involvement as an official sponsor of the Olympic Games have positioned the brand for solid global growth for the next several years.

Lenovo, China's biggest personal computer-maker, reported a 65% jump in first-quarter profit yesterday (Thursday), thanks primarily to strong performances in its European/Middle East/Africa (EMEA) marketing region.

Lenovo said net income climbed to $110.5 million, or $1.15 a share, for the three months ended June 30, a hefty jump from earnings of $66.8 million, or 74 cents a share, a year ago. Sales from continuing operations rose to $4.2 billion, from $3.81 billion the year before.

The gains came despite an overall sales decline of 4.8% in the company's Greater Americas Region, which included a decline in the U.S. market.

"Despite a softening global economy, we delivered solid gains in worldwide sales, PC shipments and profits, achieving our seventh consecutive quarter of profitable growth with positive operating results in our international business," said Chairman Yang Yuanqing.

Revenue in the EMEA marketing region jumped 20% to $903.8 million. Lenovo's PC shipments to these markets rose 26% in the quarter.

"In the PC business, it is important for companies to have good sales channels, and Lenovo has focused on this and got good results in Europe," Wang Wangli, an analysts with HSBC Holdings PLC (ADR: HBC) in Taipei who rates the computer-maker's shares as an "Overweight," told Bloomberg News

Despite its emerging-markets success, however, Lenovo's overall share of the global PC market slipped from 8% a year ago to 7.9%. The company remains the world's fourth-largest PC vendor, trailing Hewlett-Packard Co. (HPQ), Dell Inc. (DELL), and Taiwan's Acer Inc.

Of course, many analysts believe Lenovo will fare better over the long run because the company continues to be the Top Dog in China, with 27.9% of the market. Sales in Greater China, which accounted for 41% of the companies total business, rose 22% in the quarter, reaching $1.7 billion.

GfK Asia reports that volumes in Asia's retail PC market expanded dramatically in 2007, with an average overall regional increase of 21%. The biggest increase was in personal portable computers, with an average regional volume increase of 45% year over year. China was the leader in sales growth, with a 53% increase in volume.

The Asia/Pacific PC market had a quarterly growth rate of 8% in the three months ended June 30, according to IDC. The market expanded by 15% year over year, as unit sales topped 19 million.

Lenovo topped IDC's rankings, with 18.2 % market share for the last quarter.

In addition to strong earnings and home-field advantage in the world's fastest-growing PC market, Lenovo also was named an official sponsor of the Beijing 2008 Summer Olympic Games.

Three Things Lenovo Learned from the Olympics

Lenovo, the only Chinese company among the International Olympic Committee's 12 top-tier sponsors, will supply a total of 30,000 devices to the games, including 12,000 ThinkCentre M55e desktop computers, 2,000 LJ7800N and LJ3500 printers, 800 Think Pad T60 and Zhaoyang 680 notebooks, and 700 SureServer T350, R630, and R520 servers.

Of course, the commitment has meant more than supplying equipment to the games. Energy consumption requirements had to be met to accommodate Beijing's "Green Olympics" theme. Machinery also had to be equipped to handle humidity in such damp locations as Qingdao and Hong Kong. And because thousands of broadcasters are using Lenovo terminals to connect the Commentator Information System (CIS) to provide live commentary to their audiences, the Beijing Organizing Committee for the Games (BOCOG) insisted on quiet machines that would not exceed 30 decibels.

The company also selected about 600 Lenovo engineers to work with its gear. The candidates were chosen from a group of 12,000 hopefuls via an exam system that made serving in the Olympics business unit an honor. After completing tests for engineering knowledge, technical skill and English-language ability, candidates came to Beijing for four weeks of training.

"We prepped for two years for [the 2006 Winter Olympics in] Torino, and Beijing is four times the size of Torino," Wu Min, Lenovo's director of technical support for the Olympics business unit, said in an interview with NetworkWorld.

Wu also said there were three major lessons the company learned from its involvement in the Olympics.

First and foremost, Lenovo gained the knowledge and experience of learning "how to support complicated and huge projects." Second, the company learned more about adapting products and design to better suit users' needs. This lesson is an important one, because like teaching its technicians English, Lenovo will have to change the way it communicates with its customers if it is going to maximize its global-market potential and evolve into more than just a homegrown brand that's strong in China.

"Initially, in Torino, some of those products were selling only in China. Now they are selling worldwide," Wu told NetworkWorld. "The user experience is entirely different. It helps us address different requirements of international vendors and their expectations for customer satisfaction. It taught us how to meet those requirements."

Finally, Lenovo gained a tremendous amount of experience in dealing with ad hoc organizations.

"Now we know how to address this, in terms of negotiation, prioritization, and bringing together different levels of experience," Wu said.

News and Related Story Links:

  • ChinaTechNews:
    Healthy PC market in Asia continues