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Chinese IT giant goes global

Lenovo, the world’s third-largest and Asia’s largest computer-maker, signalled its intention recently to compete globally with top companies Dell and Hewlett-Packard, after turning around in six months the loss-making personal computer unit it bought from computing behemoth IBM.

Lenovo wants to sell more computers to the growing small and medium business market, which is seen as the next major growth area. It is positioning itself to sell its own branded computers to consumers and small and medium business users outside China from next year.

It launched the ThinkCentre E50, under the IBM name, in South Africa last month. (When Lenovo purchased IBM’s PC division it also bought its former Think brands, along with a five-year licence to use the IBM name.) The E50 desktop PC, designed specifically to meet the technology needs of small businesses, has a “one-button virus kill” feature and sells for R5 200. “The machine can heal itself, which is very important in South Africa because it means less IT infrastructure,” said Lenovo’s CEO, Steve Ward. It is ideal for South Africa and the rest of the continent “both because of price point and its high quality and features”.

Lenovo announced its second-quarter results in Hong Kong this week, declaring a 404% year-on-year increase in revenue for the second quarter to HK$28,5-billion (R24,4-billion).

These are the second set of results since the Chinese company bought the personal computing division from IBM for $1,25-billion in May, but the first to include three months’ trading of the two merged firms.

The purchase was one of the most significant IT deals of all time, making headlines because IBM, the maker of the original PC, was unloading its PC business to focus on services and high-end data centres.

China is the strongest- performing region for Lenovo, contributing 35,8% in revenue for the quarter.

The Europe, Middle East and Africa region, into which South Africa falls, lost market share and had a low penetration in the growing small and medium business market. This was despite record shipments and achieving number-one position in various segments, especially notebooks, which accounted for 48,7% of global revenue. This region contributed 20,4% to the quarter’s revenue.

“We had a slight operating loss,” chief financial officer Mary Ma said at the earnings results in Hong Kong, where Lenovo is listed. “However, we continued to excel in India, growing at twice the market rate.”

The jury may still be out on Lenovo’s long-term prospects. The acid test will be when its own branded PCs are introduced outside China — but the stock market is applauding. The share price has risen by 57% since the May merger.

Lenovo’s rise has been phenomenal. Founded in 1984 by 11 researchers from the Academy of Sciences, with a $25 000 grant from that government agency, it is on track to make an estimated revenue of $13-billion this year. Lenovo was the largest computer seller in China, with 28% market share, and the eighth-largest computer maker before it bought IBM’s PC division. This propelled it to number three and gave it 35% of China’s market.

Trying to dispel any perceptions that Lenovo will compete globally with low prices, Shaopeng Chen, general manager of sales in China, said Lenovo isn’t the cheapest computer seller in the country and some of its models are $30 more expensive than HP.

The Lenovo brand will be launched at the Turin Winter Olympics next year and the Beijing Olympics in 2008. Lenovo is a key Olympic sponsor.

Lenovo chairperson Yanqing Yang said that, even though Lenovo is 34% state-owned, through the Academy of Sciences, it is very market-orientated. It also enjoys freedom from intervention by the government and is one of Asia’s most significant success stories.

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Toby Shapshak
Guest Author

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