Lenovo Aiming at PC Crown

choi

Kathrin Hille, Lenovo Gains the Pace and Poise Needed for Challenge to the Top; News analysis; A company that resembled a clumzy giant has learned to move fast. Financial Times, Dec 13, 2011.

Excerpt in the window of print: 'Levono will need another leg to stand on, and they are clearly getting ready for that'

Quote:

"Fast growth at home in China, which is expected to become the world's largest PC market by unit shipments in 2012, helped Lenovo recover from the hit it took when the 2008 financial crisis killed off demand in mature market, the company's most important revenue base after its $1.75bn acquisition of IBM's PC arm.

"He [Yang Yuanqing, chariman and chief executive of Lenovo] added that strong margins in China, where Lenovo has more than 30 per cent market share, allow the company to subsidize an aggressive expansion in other emerging markets. Lenovo's China operating margin was 5.5 per cent in the September quarter, more than double its overall operating margin of 2.1 per cent.

My comment: Instinctly, one can tell from quotation 2 that Lenovo's profit margin is negligible--even negative--in markets outisde China. This is borne out by its financial statement:
2011/12 Second Quarter Results. Lenovo, Nov 2, 2011.
http://www.lenovo.com/ww/lenovo/ ... 2-PPT-Eng-Final.pdf

(a) Slide 15 (out of a total 22) showed Segment Operating Profit Margin for Q2 FY12:
(i) China 4.3% (China-PC 5.6%)
(ii) Emerging Markets (Ex. China) -1.8%
(iii) Mature Markets 2.9%

The same but "Reclassified after the adoption of new IT expense allocation method":
(i) China 4.8% (China-PC 5.1%)
(ii) Emerging Markets (Ex. China) -1.1%
(iii) Mature Markets 1.8%

(b) The same quarterly report demonstrated, at slide 4/22, that in Q2 FY12 and the previous three quarters, Lenovo's market share in China grew 3-5% in each quarter year-to-year (abbreviated as YTY or Y/Y in the report), which may explain the bulk, if not a majority, of Lenovo's growth in unit shipments (setting aside revenue or profit for the moment).
(c) The next slide (6/22) confirmed my thinking.

"Mature Market Share/YTY Gain by Geo (%)

ANZ......6.6%.......+0.3
Japan...27.1%.....+20.1
WE.......7.8%.......+2.3
NA........6.9%......+1.2"

ANZ, WE and NA stand for Australia and New Zealand, Western Europe and North America, respectively.
(d) The report is good enough--not really worthy, though--to read, particularly if you are interested in the current status of Lenovo.