Lenovo pondering British price adjustments, but tech giant to press on with European plans

Gartner forecasts worldwide information technology spending to be flat at US$3.41 trillion, following UK’s decision

PUBLISHED : Thursday, 07 July, 2016, 9:28pm
UPDATED : Thursday, 07 July, 2016, 10:58pm

Chinese technology giant Lenovo Group plans to push ahead with its strategic investments across Europe, despite the economic fallout from Britain’s vote to exit the European Union.

“Brexit will have limited impact on Lenovo,” chairman and chief executive Yang Yuanqing said, following the Hong Kong-listed company’s annual general meeting on Thursday.

The company, however, is yet to determine whether it needs to increase product prices in Britain or “digest [the cost] ourselves”, according to Yang. “It depends on the market [situation].”

While acknowledging the foreign-exchange volatility caused by Brexit, Yang said Lenovo was “very experienced in dealing with this kind of situation” after going through large currency fluctuations in Brazil and its other markets in South America, during the past couple of years.

Lenovo is the least damaged as it has 25 per cent sales exposure to Britain and the EU. Acer is the most affected because of its 37 per cent sales exposure
Bernstein senior analyst Alberto Moel

His comments come days after Dell was reported to have raised prices across its product portfolio by 10 per cent from July 1, in a response to the sharp decline in the pound.

Texas-based Dell is the world’s third-largest supplier of personal computers, behind industry leader Lenovo and HP.

Wong Wai-ming, the chief financial officer at Lenovo, said the company was “monitoring very closely” the foreign exchange volatility in Europe, which made up about 20 per cent of its business.

“We look at the overall business, rather than just raise prices,” Wong said. “We want to be able to address the situation by generating efficiency and growing our business.”

Research firm Gartner on Thursday forecast worldwide information technology spending this year to be flat at US$3.41 trillion, following Brexit.

“With Britain’s exit, there will likely be an erosion in business confidence and price increases which will impact Britain, Western Europe and worldwide IT spending,” said John-David Lovelock, research vice-president at Gartner.

Jefferies equity analyst Ken Hui recently estimated that Britain and the EU accounted for a combined 24 per of Lenovo’s personal computer shipments and seven per cent of its smartphone volume during the company’s fiscal year ended March 31.

“In addition to likely direct negative impact from weaker market demand, Lenovo’s US dollar-denominated cost structure and thin margins will suffer from the weaker British pound and euro,” Hui said. “Any attempts to raise local prices [in Britain] to offset the foreign exchange impact will only further weaken demand.”

Bernstein senior analyst Alberto Moel said in a report there were other Asian personal computer suppliers with greater exposure in Britain.

“Lenovo is the least damaged as it has 25 per cent sales exposure to Britain and the EU. Acer is the most affected because of its 37 per cent sales exposure,” Moel said.

A slowdown in Europe could hurt Lenovo’s efforts in returning to profit this current fiscal year.

The company, which operates in more than 160 countries, posted a US$128 million net loss in its financial year ended March 31, compared with an US$829 million net profit in the previous year. That loss was attributed to restructuring costs, including a write-off of its smartphone inventories.

Lenovo’s share price advanced 0.87 per cent to close at HK$4.66 in trading on Thursday.