Lenovo's future may lie in how it plays smart

PUBLISHED : Tuesday, 05 November, 2013, 2:42am
UPDATED : Tuesday, 05 November, 2013, 12:16pm

While Lenovo held on to its lofty perch as the world's top supplier of personal computers in the quarter to September, investors could sharpen their focus on the prospects of its growing mobile internet digital home (MIDH) business, which includes smartphones, media tablets and internet-linked "smart" television.

The company, which operates in more than 160 markets, is scheduled to announce the results of its financial second quarter to September on Thursday.

Investors are likely to look for some guidance, following renewed speculation that Lenovo is making a serious effort to acquire smartphone maker BlackBerry. Some reports said Lenovo had already signed a non-disclosure agreement to review the Canadian firm's financial records.

But senior executives at Lenovo, led by chairman and chief executive Yang Yuanqing, declined to confirm such a move.

Independent market researcher and consultancy Strategy Analytics said last week that Lenovo shipped 10.8 million smartphones on the mainland and selected international markets to rank fifth behind Samsung Electronics, Apple, Huawei Technologies and LG Electronics.

In a report, Barclays said: "While Lenovo does not give official guidance, we expect it to continue to grow sales year on year … with margins expected to improve because of better PC and smartphone profitability."

Last Tuesday, investors saw Lenovo boost its profile in the tablet arena with the signing of US actor, entrepreneur and technology investor Ashton Kutcher as a "product engineer". Kutcher will work with Lenovo's engineering teams around the world to develop and market the company's Yoga line of tablets.

That appointment was followed by research firm IDC's announcement last Wednesday that Lenovo became the world's fourth-largest supplier of tablets in the September quarter, when it shipped 2.3 million units. It ranked behind Apple, Samsung and Asus, but ahead of Acer.

In its financial first quarter to June, Lenovo saw consolidated sales of its MIDH business grow 105 per cent year on year to US$1.2 billion, which represented 14 per cent of the firm's US$8.7 billion revenue. The business was established in January 2011.

The company, however, is facing strong competition in the mainland's nascent smart television market. While Lenovo was the first to launch a line of smart televisions last year, strong publicity generated recently by new competing products from smartphone maker Xiaomi and television maker TCL, which has partnered with the mainland's online search giant Baidu, seemed to sidetrack its first-to-market advantage.

Lenovo chief financial officer Wong Wai-ming said earlier the company had the capability "to dominate the [domestic] smart TV market because we are designing products for mainland consumers".

In separate preliminary market estimates released last month, IDC and Gartner said Lenovo's personal computer shipments in the September quarter grew about 2 per cent year on year to 14.1 million units.

Lenovo, which has its headquarters in Beijing and Morrisville, North Carolina, expanded faster than the personal computer market for the 18th consecutive quarter. It also seized its biggest-ever quarterly market share, which IDC put at 17.3 per cent and Gartner at 17.6 per cent.

That was in contrast to the sixth consecutive quarter of declining shipments for the industry. IDC said the market shrank 7.6 per cent year on year to 81.6 million units, while Gartner estimated an 8.6 per cent decrease to 80.3 million units.

A report from Bernstein Research senior analyst Alberto Moel said Lenovo's "product mix is skewed towards the commercial PC business". That means the company had "a better defensive position as the replacement cycle of commercial PCs is more stable and predictable than that of consumer PCs".

Shares in Lenovo rose 1.69 per cent last Friday to HK$8.44, their highest close since HK$8.55 on March 8. The stock fell 0.95 per cent to HK$8.36 yesterday.