Smartphones and tablets -- PC giant Lenovo's next frontier

HONG KONG Thu Nov 8, 2012 5:17am EST

1 of 2. A LePhone is on display during a news conference in Hong Kong May 26, 2011.

Credit: Reuters/Tyrone Siu

Related Topics

HONG KONG (Reuters) - Lenovo is on track to become the world's No.1 PC maker, but with traditional PCs going out of vogue with consumers, the Chinese company is pinning future growth hopes on smartphones and tablets, a segment dominated by Apple and Samsung Electronics.

The Thinkpad maker has successfully grabbed market share from rivals such as Dell Inc and Acer Inc. Technology research firm Gartner says it has already overtaken market leader Hewlett Packard Co in PC shipments and rival research firm IDC ranks it a close second.

However, with the traditional PC sector's long-term future uncertain, Lenovo has forayed recently into the mobile computing business and is ploughing resources there.

Reflecting that push, the company reported on Thursday a 12.6 percent rise in quarterly net profit to $162 million, its slowest profit growth in more than two years, though it beat the $156.3 million consensus forecast of analysts.

"Obviously their cash cow is still going to be PCs, so they will use their PC business to expand into tablets and smartphones," said Jonathan Ng, an analyst with CIMB in Singapore.

In the six months to September, Lenovo's PC revenues accounted for nearly 90 percent of total revenues of $16.7 billion and grew 14 percent.

Revenues at its mobile Internet and digital home division more than doubled to $1.3 billion in the same period, mainly due to consumers snapping up its smartphones in China, the world's largest mobile phone market.

Lenovo has been adept at capturing market share in the PC sector, claiming the No.1 spot in markets such as China, India, Germany, Japan and Russia.

A raft of acquisitions in the United States, Japan, Germany and Brazil over the past few years has also helped strengthen its foothold.


But with the traditional PC sector viewed by many analysts and investors as a sunset industry, Lenovo is attempting to pack more punch into its mobile computing products in a segment where consumers are often fickle on brands and features.

Last month, it launched the Yoga, a laptop running Microsoft Corp's Windows 8, which can be converted to a tablet PC by flipping the screen all the way backwards.

Lenovo's smartphones, such as LePhones, have gained traction in China with the PC maker ranking second in terms of market share in the second quarter, behind Samsung Electronics, IDC data showed.

In the second quarter, Lenovo sold 8.6 million phones, including 7 million smartphones, mainly in China, CEO Yang Yuanqing told a media teleconference on Thursday.

"We've had success in China. For the next step, we want to expand in the emerging markets first, then mature markets," he said. The company derives nearly half of its total revenues from China.

Its China smartphone business is currently loss-making, but the company expects to turn a profit in the next few quarters, executives said.

Whether its Windows tablets and smartphones achieve wider success remains to be seen, in a market where Google Inc's Android and Apple's iOS rule.

"So far in China, they have the advantage and they have been doing well over there. But outside China, that remains to be seen because competition is more intense," CIMB analyst Ng said.

Microsoft has also launched its own Surface tablet, though market observers say the impact on PC suppliers in Asia is limited.

"The shipment target for Surface is still relatively low and PC makers here still have an edge in terms of hardware design and performance," said Audrey Chiu, manager for investment and research at Truswell Securities Investment Trust Co Ltd, which owns Lenovo shares.

Shares of Lenovo ended down 2.6 on Thursday, in line with the broader market's fall. Lenovo shares are up 27 percent since the start of this year.

(Editing by Muralikumar Anantharaman)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

How to get out of debt

Financial adviser Eric Brotman offers strategies for cutting debt from student loans and elder care -- and how to avoid money woes in the first place.  Video