|Lenovo is on Track to Oust HP as the No.1 Global PC Vendor
Beau Skonieczny, Research Analyst, Computing Practice, TBR
A balanced mix of organic and inorganic growth continued to drive up Lenovo’s share of the global PC market:
Lenovo continued to capitalize on growing PC demand in China and other emerging markets, which collectively grew 25% year-to-year.
Increased household spending in these regions drove increased adoption of PCs, particularly desktops, where unit sales grew 32% year-to-year to make Lenovo the #1 consumer desktop provider worldwide. Lenovo’s notebook sales were equally impressive, with shipments rising 41% from 4Q10, reinforcing the company’s footing as the #1 commercial notebook manufacturer.
The prior acquisition of Medion in Germany and the joint venture with NEC in Japan continued to support Lenovo’s success, propelling mature market revenue up over 80% year-to-year. TBR believes Lenovo will continue to benefit from increased brand awareness among the consumer markets in Western Europe and Japan, which will help establish long-term revenue streams and build traction in the mature consumer space.
Lenovo is gaining ground quickly in mobile devices:
Lenovo continued to leverage its local brand awareness to generate strong growth momentum in China from its handsets and tablets. Smartphone sales in particular grew more than 400% from the prior quarter in China, lifting Lenovo into the double-digits for smartphone share in the region. TBR believes the aggressive pricing of the A60 smartphone is helping Lenovo establish share quickly in the China handset market. We expect Lenovo’s rapidly expanding smartphone presence in China to build a foundation for the company to offer more premium-priced products, such as the upcoming K800 smartphone, powered by Intel’s Medfield Atom processor to achieve greater performance and battery life.
Lenovo will offset the impact from hard drive shortages through stringent cost controls and higher margin PC sales:
While Lenovo’s sales were not materially impacted by hard drive shortages, TBR expects the supply shortages to carry into Q1 2012 as many factories in Thailand continue to recover from the floods. Consequently, the overall cost of materials for PC makers will rise due to limited supplies, leading to reduced inventory levels. However, Lenovo will counter the increased component costs by promoting higher margin product lines, such as ThinkPad and premium consumer PCs. In addition, TBR believes Lenovo will leverage its continually expanding scale to achieve volume price benefits.
TBR expects notebook units will be less impacted by the hard drive shortages as mature market consumers and commercial customers pursue SSD-based systems to take advantage of instant on capabilities. SSD supplies are not as sensitive to the supply shortages, as component sourcing is less concentrated to manufacturing facilities in Thailand.
Lenovo is spearheading the evolution of mobile PCs by pursuing a differentiated lineup:
TBR believes the flood of Ultrabooks for $900+ with minimal variation between vendors will be met by lax consumer demand, particularly as Apple’s MacBook Air continues to captivate consumer adoption at a premium price point. Lenovo is shepherding a more diverse approach to thin, light, instant-on and power-efficient notebooks to match the needs of particular PC users. One such product is the IdeaPad Yoga, which Lenovo announced in January. The Yoga is a 13-inch Ultrabook that can be converted into a tablet. Since the Yoga runs on Windows 8, it will not be available until H2 2012, when Windows 8 is expected to launch. The Yoga will lead the charge into Windows 8 hybrid Ultrabooks, helping Lenovo get a jump on the competition by generating early customer awareness.
TBR believes the Yoga epitomizes the trend toward the consumerization of IT, as the device can leverage a traditional laptop form factor, eight-hour battery life and full PC performance for work, while also adapting to home use with instant-on and the touch-friendly Windows 8 Metro interface. Consequently, customers can derive more value from the Yoga as it can accommodate a broader array of use cases, helping to justify the premium $1,199 starting price.