Lenovo’s agreement last month to form a joint venture with NEC did more than just create Japan’s biggest personal computer maker by sales. The joint venture, which Lenovo will control, sends a bigger signal: Lenovo is back.
The Chinese company last year became the fastest-growing of the world’s leading PC vendors and has been winning market share due to cyclical changes in the global industry as well as internal restructuring. The deal has also reignited a long-running rivalry with Taiwanese competitor Acer.
Lenovo suffered badly during the global financial crisis. After buying IBM’s PC unit in 2005, the Chinese company relied too much on corporate customers and failed to expand its successful consumer business globally. Plummeting corporate PC demand saw Lenovo fall far behind Acer in terms of market share.
Acer, meanwhile, managed to turn its strong focus on consumer products and a quick-witted move into the netbooks market into several years of industry-beating growth.
By 2009, its share of the global market matched that of world number two Dell. In 2010 the Taiwanese company slipped to third, but held off Lenovo, which remained in fourth place, according to IDC.
Now Lenovo is turning the tables on Acer. In the fourth quarter of 2010, it was breathing down Acer’s neck, with a global market share of 10.4 per cent compared to its Taiwanese rival’s 10.6 per cent, according to IDC. A year earlier, Acer had a four-percentage-point lead on Lenovo and held 12.8 per cent.
Lenovo’s venture with NEC is set to boost its global market share. Under the deal, Lenovo will pay NEC $175m in new shares for a 51 per cent share of the joint venture, with the option of eventually taking full control. Grace Chen, analyst at Morgan Stanley, estimates the deal should lift Lenovo’s PC shipments by 6 per cent a year.
The rapid shift in fortunes reflects a change in the forces powering the global technology sector economic post-crisis.
Fresh economic fears in Europe at the start of the year have damped consumer demand and Acer’s notebook sales as a result. Because the company sells very few tablets and smartphones, it is missing out on the fastest-growing market segment.
Consequently, Acer’s fourth-quarter revenues fell 11 per cent year-on-year. It blamed bad weather and economic conditions in Europe, which accounts for more than half of its revenues, but according to IDC, the company also suffered a 28 per cent drop in shipments in the US.
Acer’s PC shipments dropped 15 per cent in the fourth quarter – the steepest fall in the industry – while Lenovo’s rose 21 per cent, the fastest gain among PC makers.
The latest figures support the trend, with Acer’s January sales down 34 per cent from a year ago and 4 per cent less than December’s.
Meanwhile, Lenovo saw revenue grow 22 per cent, with a 25 per cent jump in net profit for the three months to December 31, compared with a year earlier.
One of the main drivers is corporate spending on IT. “Increased demand in commercial PC opportunities across western Europe and North America resulted in a year-over-year 23 per cent increase in Lenovo’s PC shipments in mature markets during the [December] quarter, compared to an overall industry decline in mature markets of 3.6 per cent,” according to Lenovo.
Bhavtosh Vajpayee, head of technology research at equity broker CLSA, said that despite strong corporate demand last year “the need to spend has only been partially satisfied.” Mr Vajpayee estimates 84 per cent of the world’s business desktop PCs are five years old and thus long overdue for an upgrade.
Lenovo is also reaping the benefits of a management reorganisation spurred by the financial crisis. The company has successfully launched products appealing to consumers such as the LePhone, its answer to Apple’s iPhone, and the Ideapad U1, a hybrid tablet computer.
Acer has taken steps recently to bolster its position and to further its goal of overtaking HP this year as the world’s top mobile PC vendor. It is attacking in Lenovo’s home market through a partnership with Founder, one of China’s oldest PC brands – a move that is expected to take its share of the Chinese notebook market from 8.5 per cent 2010 to 13.8 per cent this year.
But as Lenovo took the highest-ever share in its home market in the last quarter, the fight clearly will not be an easy one.