Saturday, April 21, 2007

Lenovo: Down So Long, It Looks Like Up

Integrating IBM's PC division continues to tax China's No. 1 computer maker, but growth is up, and more job cuts are cheering investors

by Bruce Einhorn

Promising a Payoff
Although the IBM deal catapulted Lenovo into the top tier of PC makers globally, the company has been losing market share. On Friday, market research firm International Data Corp. announced its numbers for the first quarter, showing that Taiwanese rival Acer had climbed into a tie with Lenovo at 6.7%.
The Taiwanese have the wind at their backs: While Lenovo's sales climbed 17.4%, Acer's jumped 41.4% (see, 1/07,
"Acer Closes in on Lenovo").
Still, Amelio promises the payoff is coming. Lenovo's first-quarter sales growth wasn't as sizzling as Acer's, but it still topped the 10.9% growth of the overall market and certainly outshone the 6.9% slide that Dell suffered. Moreover, the newest cutbacks will cost the company between $50 million and $60 million (to be charged this quarter), but management believes Lenovo will see $100 million in savings for the year.
Are there more cuts to come? Maybe, but Amelio says the shrinking at Lenovo might be over.
"We believe the 'tipping point' is within reach," the executive said in a statement released by the company as it announced the layoffs. "If we can combine optimal cost competitiveness and efficient delivery capabilities with innovative, best-engineered products, we can generate more profitable growth, gain market share, and make further reinvestments into the business, fueling more growth."

Moving Up in the World
Investors were cheered by the news of the layoffs. Lenovo's stock price rose 2.1% in Hong Kong trading on Friday. Some other good news for Lenovo came on Friday with the announcement by IDC that the company had expanded its lead in Asia Pacific (excluding Japan) in the first quarter.
While the market as a whole grew 17.6% year-on-year in the first three months of 2007, Lenovo enjoyed 24.3% growth. Lenovo is tops in the region, with 17.8% of the market, compared to No. 2 Hewlett Packard's (
HPQ) 15.4%. And this progress came at a time when sales in China slumped because of the weeklong Chinese New Year holiday; that's a sign Lenovo is becoming more of a player in other countries around the region.

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