5b yuan plant in Wuhan for Lenovo
Lenovo, the world's second-biggest supplier of personal computers, will invest 5 billion yuan (HK$6.16 billion) over the next five years to build a manufacturing plant for smartphones, media tablets and other mobile internet devices in Wuhan, the capital of Hubei province.
The company's new industrial base will also support sales, research and development programmes for its fledgling mobile internet and digital home (MIDH) business unit, which started selling a 'smart television' that runs Google's Android operating system last month on the mainland.
'We're determined to firmly seize the tremendous opportunities for innovation in this [mobile internet devices] market,' chairman and chief executive Yang Yuanqing said yesterday.
Operations at the Wuhan facility, which is expected to create nearly 10,000 jobs in the next few years, will begin in October next year.
Lenovo forecast sales of devices made in the plant would reach 10 billion yuan by 2014, increasing to 50 billion yuan in about five years, as its production output would serve both domestic and international markets.
'Overall, Lenovo's new manufacturing base is good for building up its capabilities and for its cost structure,' said Alberto Moel, a senior analyst at Bernstein Research. 'But I don't think it does anything for [the company's] competitive situation.'
The plant in Wuhan represents the latest infrastructure investment for Lenovo in the country's inland provinces, where labour costs are lower compared with those in the southern coastal provinces.
In September last year, the company formed a joint venture with Taiwanese firm Compal Electronics to build a manufacturing facility for laptops and space-saving, 'all-in-one' desktop computers in Anhui province.
Lenovo and Compal, the world's No 2 contract manufacturer for laptops behind Quanta Computer, have agreed to invest up to US$300 million to construct the manufacturing plant in Hefei, the capital of Anhui. The facility will start operations by the end of this year.
The mainland computer giant's MIDH business unit contributed about US$570 million to its record US$8.4 billion revenue in the quarter to December.
But Bernstein Research said the business unit's research and development expenses for smartphones and media tablets had increased from US$20 million to US$$75 million per quarter over Lenovo's last fiscal year that ended in March.
'We estimate research and development at MIDH made up between 40 and 60 per cent of Lenovo's [total] research and development resources in the past two quarters,' Moel said.
Bernstein Research forecast Lenovo to sell about 13 million smartphones in its current fiscal year to March, up from an estimated 6.2 million in the past fiscal year, due to a booming domestic market for 3G handsets in the US$100 to US$200 price range. Lenovo does not sell handsets overseas.
The firm, however, faced stiff competition from other mainland handset manufacturers also targeting the nation's fast-growing 3G subscriber base and that same mid-priced smartphone market segment, Moel said.
These domestic rivals included Huawei Technologies, ZTE, Coolpad-maker Yulong Computer Telecommunication Scientific (Shenzhen), Shanghai-based SIM Technology, Beijing Tianyu Communication, TCL Communication and new entrant Xiaomi Technology.
Lenovo's share of the mainland's smartphone market in the fourth quarter of last year, according to research firm IDC