Sale of Lenovo unit approved

PUBLISHED : Tuesday, 18 March, 2008, 12:00am
UPDATED : Tuesday, 18 March, 2008, 12:00am


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Disposal of mobile-phone business part of expansion plan

Mainland computer giant Lenovo Group saw its international expansion strategy move on to the fast track, as shareholders gave their approval to disposing of the company's money-losing mobile-telephone business.

A majority of Lenovo's independent shareholders yesterday voted in favour of the disposal at an extraordinary general meeting, said chairman Yang Yuanqing.

Casting off the handset-making unit would 'provide the group additional resources for supporting its expansion plan', Mr Yang said.

Although the shareholders' approval was expected by analysts, the next moves by Lenovo remain to be seen - especially in its critical manufacturing and distribution supply chain activities.

The unprofitable subsidiary, Lenovo Mobile Communications Technology, is to be sold for US$100 million to a consortium led by Hony Capital, the private equity arm of Legend Holdings, Lenovo's parent company.

'This will help Lenovo's management refocus strongly on the computer business,' said Joseph Ho, an analyst at Daiwa Institute of Research in Hong Kong.

But Wong Wai-ming, Lenovo's chief financial officer, declined to provide an update on the company's plan to buy the Mexican personal computer business of Sanmina-SCI Corp. The deal would mark its first big acquisition since it bought IBM's personal computer division in 2005.

'All I can say is we're also building a new facility in Mexico,' Mr Wong said.

In a recent research note, Morgan Stanley analysts said: 'Lenovo plans to increase in-house production by setting up its own production plants and reducing outsourcing.'

That is in contrast to the strategies of Hewlett-Packard, Dell and Acer, which all rely on production outsourcing - especially for laptops - to Taiwanese original design manufacturers.

In July last year, Lenovo said it was investing more than US$30 million to build new manufacturing plants and order-fulfilment centres in Baddi, India, and in Monterrey, Mexico to support regional requirements.

The Sanmina plant is expected to complement Lenovo's new 24,155 square metre facility in Monterrey, due to start up in the middle of this year.

Lenovo's other plants are in Beijing, Huiyang, Shanghai, Shenzhen, North Carolina and Pondicherry, India.

'We believe that Lenovo's product and marketing strategies will be dependent on its production planning, as it needs to consider capacity utilisation and manufacturing efficiency at the same time to stay competitive,' the Morgan Stanley report said.

Lenovo president and chief executive William Amelio has said the new IdeaCentre consumer-oriented desktop personal computers will be released in the middle of this month, following the international introduction of its IdeaPad laptops.

Mr Amelio also expects the firm's new line of server computers, designed for small and medium-sized enterprises, will be ready by the end of this year. He said this 'would very quickly become a profitable business'.

Whatever the future state of its production supply chain, marketing of Lenovo's new products will no doubt be helped by the company's high-profile sponsorship deal for the Beijing Olympic Games.

Deutsche Bank analysts, in a recent research note, said Lenovo's visibility at the Games will 'enhance brand awareness and drive demand'.

Lenovo is projected to record a 156.39 per cent increase in net profit to HK$3.22 billion in its fiscal year to March from HK$1.25 billion the previous year, according to a consensus estimate made by Thomson Financial from a survey of 16 brokers.

Sales for the mainland firm are predicted to reach HK$130.68 billion, up 14.64 per cent from HK$113.99 billion a year ago.