Will Lenovo's race to be No. 1 in PCs neglect overall growth?

Lenovo will soon overtake HP to lead the world PC market, but the low profit margins and increasing competition from other product segments loom over its future growth.
Written by Liu Jiayi, Contributor


(Screenshot by Liu Jiayi/CBS Interactive at http://www.lenovo.com.cn/)

Lenovo’s 2012 Q2 global PC shipments figure at 12.8 million, came close to matching current leader HP’s 13 million units, thanks to a 15 percent increase compared with the same period of last year, according to a recent Gartner’s research.

"It's just a matter of time before Lenovo becomes number one and it won't be surprising at all if it happens later this year," said Frederick Wong, executive director at Avant Capital Management, according to a Reuter’s report.

Although the global PC demand was flat for the quarter because of the economic uncertainties in the Eurozone and the United States, Lenovo’s growth remained strong, narrowing the market share gap with HP to only 0.2 percent, controlling 14.7 percent of the pie. A series of acquisitions and aggressive pricing were the driving force behind its quick expansion, said the research.

But the low profit margin and increasing competition in other product segments may slow Lenovo’s overall growth.

According to Thomson Reuters’s data, the company’s operating profit rate in 2012 Q2 was only 1.4 percent, which lagged far behind HP’s 7.4 percent and Dell 's 6.2 percent.

"HP, Dell and Acer have switched lanes in the PC race and passed the baton to Lenovo in terms of focusing on sales rather than margins," said Dickie Chang, an analyst at IDC in Hong Kong in a PC Pro article.

The competition in other markets like smartphones, tablets computers, and enterprise market is set to put pressure on the first Chinese company to crown a technology sector.

Lenovo’s smartphones account for less than eight percent in the mainland China market, but it has been struggling to gain traction in high-end products against Apple and Samsung, and also finds it hard to beat ZTE and Huawei’s “under-a-thousand-yuan ($157)” smartphones that flood the market.

In the tablet space, with only one million pieces sold since its launch in Jan 2010, its answer the Android-run Ideatab, is also facing increasing competition this year from alternatives such as Kindle Fire, Nexus 7, and Microsoft’s Surface.

It also faces a steep challenge in the world server market, currently dominated by HP, Dell and IBM--with 29.2 percent, 21.8 percent and 12.1 percent in sales volume respectively--in which Lenovo holds a distant 2 percent market share.


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