Lenovo set to take top PC maker crown, but at what cost?

Lenovo set to take top PC maker crown, but at what cost?

Summary: Chinese PC maker Lenovo could take the top spot as the world's biggest PC maker in a matter of weeks. But its lack of tablet experience in the post-PC world and low profit margins could hit the firm.

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There's a new world order in the PC making business, and China is about to take the lead. 

Everyone knows that HP makes computers, as do Dell. But the word on the street of Lenovo still comes back with a muted pause. It's the silent market killer and it sneaked up on the other PC makers like a stealthy ninja. 

In a matter of weeks, the China-based PC builder will likely overtake HP as the world's biggest PC manufacturer, making the company the first Chinese company to take the lead over all others in the technology space, despite many taking podium positions in other spaces.

Breaking down the numbers: IDC data released last week pegged Lenovo in second place at 14.9 percent market share behind HP's 15.5 percent. HP continues to decline by double-digits each quarter, while Lenovo is rocketing ahead. Dell remains at third place after Lenovo leapfrogged the PC giant some quarters back; it's falling at similar numbers to HP. comScore narrowed the gap, suggesting the market share difference could be as little as 0.2 percent.

Either way you look at it, this quarter's end should yield some interesting results.

But while Lenovo sprints to lead the race, its profit margin could hold it back in the long run. Beyond all else, its retail price to profit ratio helped the PC maker jump as far ahead as it has. 

According to Reuters, latest Thomson Reuters data puts HP's profit margin at 7.4 percent, Dell's at 6.2 percent, while Lenovo's is way behind at around 1.4 percent --- down from 1.8 percent last quarter.

The post-PC (or "PC+" --- we're splitting hairs here) industry is changing in the face of sales, rather than profit. Plus, as ZDNet's Larry Dignan explains, because it's already on the same turf as others in the outsourcing space, it can in-house develop and manufacture products without having to turn to a third-party like Foxconn.

While China still accounts for a majority of Lenovo's revenue, U.S. and European markets still take up a significant portion. 

Despite its lacking ability and expertise in the tablet market, and a stagnant string of quarters in the PC building industry, it's an almost impossible feat to reach breakneck speeds while soaring through custard, treacle, or something equally thick and gooey. 

The big question remains over whether or not the company can maintain it. Just as HP and Dell's profits are up but sales are down, Lenovo is switching paths with its entirely different reverse approach. 

Image credit: Lenovo.

Topics: Lenovo, Dell, Hewlett-Packard, China, PCs

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22 comments
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  • PC Innovation is Dead

    At those sorts of margins, say goodbye to thought put into new, imaginative products that people will actively want to buy. All you're going to get is commodity boxes piled high and shoved quickly out the door.

    Meanwhile, of course, Intel and Microsoft continue to rake it in, grabbing the lion's share of profit from every PC sold. As the PC vendors lose interest, you can see Intel and Microsoft taking a more and more dominant hand in the hardware, Intel with its moribund "Ultrabooks", and Microsoft with its never-to-be-much-more-than-vapourware "Surface" concepts.

    Meanwhile, the real innovation--and consumer interest--is moving to new markets beyond the reach of Intel and Microsoft, namely ultramobile devices based around non-Intel chips like ARM and MIPS, and running non-Microsoft operating systems like Android, MeeGo and other Linux-based derivatives. ARM chips already outship x86 by over 4:1, while MIPS is about 50% more popular than x86. Put these volumes together, and you can see why Linux is the world's most popular (and still fastest-growing) OS.
    ldo17
    • MIPS about 50% more popular than x86?

      I'd like to see proof of that as I really cannot see how that is possible, unless you don't count x64 in your x86 line of processors as most people usually do.

      As far as I know, MIPS has markets in some embedded systems and in the super-computer systems, which I don't think could outsell x86 which is consumer oriented and also well used in servers.
      lepoete73
      • ARM outselling x86 chips 4:1? Sure, when it takes 10 ARM chips to do the

        work of one Intel chip, then, it might be true.

        However, can ARM chips compete against x86 chips in performance and features?

        And, when did Linux overtake Windows in the OS market? There are still between 1 1/2 and 2 billion Windows-based PCs out there in the world, and close to 400 million being sold every year. How many of those new PCs get loaded with Linux? Microsoft sells more Windows licenses in one day than the whole total of Linux boxes since Linux was born. ;)
        adornoe
        • You don't get out much

          ARM chips are like locusts. They appear in vast numbers of gadgetry that are sold in vast quantities.

          However, I think the 4:1 bit largely comes from how many mobiles have ARM and that hugely more mobiles are sold (somewhere near 1 billion a year and up) and almost all of them have ARM chips in them.
          ego.sum.stig
          • Why compare "disposable" computer chips, against a true computing CPU?

            Fact is that, smartphone sales drive the ARM market, and, because people "upgrade" every year or two when their carrier plans are due for renewal, those smartphones, along with their ARM chips, are discarded. That makes the ARM chips as disposable as paperback books, except that, many people keep their paperback books a lot longer.

            When it comes to a PC CPU, it's a lot more valuable and a whole lot more useful, which is the reason that, people will keep their computers around a lot longer than they will the "disposable" devices with "ARM Inside". It's like comparing a house to a camping tent. Guess which one is the tent?
            adornoe
  • PC+ era

    PC+ is fair enough. Post-PC is fiction and utter nonsense. The difference is not "splitting hairs".
    Tim Acheson
  • I don't get it...

    I can build a computer from scratch that knocks the socks off anything for the same dollar amount. Given how low wages are in China, I cannot imagine it would significantly increase that cost.

    My last computer (in Dec. 2008) cost me in the $650-700 range... Looking on Best Buy's website at the time, the closest competition to my system came in at $3,000. I'm not even going to do the math, but that's a BIT more than single-digit profits. I realize you then have to pay people to get it into the channels, someone to actually order the different parts, etc. That said, I feel no sympathy for Lenovo, Dell, or anyone else. If EVERYONE is getting a pay check and all bills/taxes at a company and there is money left over for rainy days, I see no reason to raise the cost of goods just to say it's a "luxury" item that people will unwisely pay more money to own.

    Even not-so-tech savvy people are able to customize their systems just fine on Dell. Of course, that same person can go to some website on pricewatch that builds / tests and even has warranty support for a fraction of the cost. I don't have my phone on a contract for the same reason I won't pay extra for the name on a box and their marketing... I'd rather keep that extra money for myself.
    ikissfutebol
    • Most sales now comes from laptops

      Most sales for HP, Dell and Lenovo comes now from laptops around the 500$ mark. If you tried to build your own laptop of similar capacity you wouldn't even come close to their price, that is if you were able to get your hands on all necessary parts most of which cannot be found at normal retail outlets.

      Desktop machines are now a very small markets, mostly composed of businesses and enthusiasts of which I am a proud member. It's easy to make a custom desktop and beats in price and capacity those of Dell, HP and other manufacturers, and your custom made will most likely be more reliable.
      lepoete73
    • Support & overhead

      The extra you're seeing isn't just profit, it's also the massive cost that companies incur when something goes wrong and it needs to be shipped somewhere to be repaired under warranty, or when the consumer simply goes 'meh' after a couple days and returns it.

      Then there are shops to run, websites to operate, marketing to be done and many other overheads.

      That said, $700 vs $3000 is a big difference... unless you were comparing to Apple. ;)
      Han CNX
    • Please do the math, again.

      If you are saying you built a $3000 computer for $700, I say: uh-huh. I've been in PC retail for 30 years, and I can tell you those kinds of margin differences simply don't exist. At best, I've seen a 30 percent difference between a high-end home build and a factory machine; in the lower end, it'll actually cost you more to build a PC by hand.
      ddubowits
  • PC or tablet? That is the question

    First I see Lenovo as an off brand. I always felt Dell was over priced so I never owned one. HP used to be dependable, but support has deteriorated over the years and the machines are less dependable. I recently bought an Acer laptop. It seems to be a good machine at a descent price. However I primarily use a desktop, which is custom built by cyberpowerpc. None of the big box stores can match my custom machine for the same amount of money. I need a pretty strong machine due to hobbies and work. I use Adobe suite which requires an above average machine.

    For the average person though I believe over the next five years tablets will replace laptops and desktops. Most people surf the web, do web based email, facebook, twitter, netflix, etc. A good tablet will handle all this from the comfort of a recliner. Working people will continue to use desktops and laptops. But the area for growth is going to be tablets, while the PC market shrinks. This spells doom for any PC manufacturer that can't transition to the new market. At a 1.4% profit margin Lenovo may not have the money to make the transition. Since they are the volkswagon of PC,s I don't see that as a great loss.
    cuulblu
    • Lenovo as off brand?

      With all due respect, I expect that if you consider Lenovo as an off-brand, you have never owned one. At the risk of sounding like a commercial, my Thinkpad is the best laptop I have ever owned. It is fast, has Full HD display, the best keyboard by far, hardware and software bump/fall protection, high build quality and was $1,000 less expensive than an equally equipped Macbook Pro, and even less expensive than a comparable Dell business machine.

      Having said all of that, I do wonder how they can do any R&D on that low of a profit margin. Their reign may be short lived.
      michael56555@...
      • Let's not forget

        Lenovo inherited that "PC" business from IBM, the designers of the IBM PC. It was also IBM who made Microsoft and Intel who they are today by mandating Microsoft make the software kit and Intel make the hardware kit of the IBM PC.

        The real question is indeed, what Lenovo can advance from the IBM PC designs they inherited, before turning into yet another "me too" company.

        IBM has actually put an tremendous effort in research and design.
        danbi
        • Buying the ThinkPad brand was an excellent decision

          Lenovo was interested in the ThinkPad brand and technology for the know how, global recognition and the manufacturing supply chain management expertise. All manufacturers have different grades of quality. The IdeaPad line products won't take the same abuse that you can put an ThinkPad through, but at least they are level : I use a Dell Vostro at work and my mother uses a Toshiba Satellite and neither of them stay flush with the table. Workmanship of a machine whose life is considered less than 2 years should still be good enough to have a good impression.

          As for innovation, I cannot say that computers have changed all that much since the late 90s. Keyboards, screens, storage and multimedia have gotten a little better, but performance does not make a computer more pleasant experience.
          OKirin
  • Lacking ability in Tablets?

    I pretty much stopped reading right there. Lenovo has been making Thinkpad tablet hybrid laptops for ages. Also the Thinkpad slate and A1 are not too shabby.
    mkelley65
    • It is quite funny isn't it

      Obviously the writer has never ordered tablets from Dell and Lenovo. Lenovo's moving to #1, because ever since they bought IBM's PC business they have constantly improved their products. On the other hand HP who bought Compaq was happy to rebrand crap and make tons of money. It's the difference between leading for short term stock increases and leading for long term success. Unfortunately the pay scales of most of these US CEO are setup to increase short term profits at the cost of long term success.

      HP will be dead as we know it in five years. They will split it up or restructure.
      dbiz2
      • Lenovo set to take top PC maker ... It is quite funny isn't it

        or hp will met the same fate (demise) as sun micro... and i'll wait for the same with apple after the death of its founder! five years perhaps ...
        kc63092@...
  • HP

    New Name For HP,,, LB ( Living BAD )
    sightsandsounds
  • Just wondering...

    Why it is that all this drivel is being put forth about the end of the PC... Is is so that the readers will jump in and take time to explain in no uncertain terms that they will have their PCs until they are taken away in a box? Or is it simpley click-bait, like on other sites, such as Betanews?

    I used to really enjoy ZDNet, with your writing, along with Adrian's, at the top of my list, but I keep seeing stuff about phones and tablets from him, and this end-of-the-PC-world stuff from you - it doesn't make me want to spend much time here.

    I know things are not great, like in the heyday of the PC, but still, there is interesting stuff to write about, or criticize, all the time. All it takes is a little looking.

    I'd rather hear about why Thunderbolt is not the interface for the masses than anything about a cell phone.

    As for Lenovo, the way they will be number one is with customer service - where Dell, Acer, and H-P all fail.
    chrome_slinky@...
    • Like watching a bug-zapper

      I think you're right. It has been determined through experimentation that the heads of Microsoft employees explode when subjected to the phrase "Post PC." They appear to be terrified that just saying it will cause it to happen, as if a few blogs on ZDNet are going to move the sales needle to zero by some paranormal force.

      For those who think less-than-happy thoughts about Microsoft, it is sort of fun to watch the blood and guts pour out of the poor dears. Perhaps that's why the authors do it.
      Robert Hahn