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Lenovo Looks at Purchases Amid Mobile-Device Expansion

By Bloomberg News
September 03, 2012 4:21 AM EDT 3 Comments
Lenovo Group Ltd , whose headquarters are in Beijing and Morrisville, North Carolina, will introduce a wider array of phone models this fiscal year.
Photographer: Daniel Acker/Bloomberg
Lenovo Group Ltd , whose headquarters are in Beijing and Morrisville, North Carolina, will introduce a wider array of phone models this fiscal year.

Lenovo Group Ltd. (992) said it will consider acquisitions to drive growth and build competence as the world’s second-largest personal computer maker expands in new areas such as mobile devices.

“We would fully leverage this tool if the target is consistent with our strategy,” Chief Executive Officer Yang Yuanqing said in a telephone interview from Beijing. “Any area which is consistent with our strategy where we are weak, we would like to consider acquisitions.”

As Lenovo gets closer to its goal of passing market leader Hewlett-Packard Co. (HPQ) in global computer shipments, Yang is looking at ways to sustain the fastest annual pace in sales growth in six years. The company, which overtook Apple Inc. (AAPL) in the three months through June for second place in smartphone sales in China, will introduce 40 models of phones in the year started April 1, Yang said.

“The mobile business, tablets and smartphones, is crucial for its long-term outlook, given the slowdown of global PC demand,” said Vincent Chen, an analyst at Yuanta Securities Co. in Taipei.

Shares of Lenovo jumped 3.8 percent in Hong Kong trading to close at HK$6.54, their biggest gain since Aug. 17. The shares have gained 26 percent this year, compared with a 6.1 percent advance in the Hang Seng Index.

Widen Offerings

Lenovo, which bought the PC division of International Business Machines Corp. (IBM) in 2005, boosted sales last year by buying control of Medion AG (MDN), an Essen, Germany-based computer maker, and the PC unit of Tokyo-based NEC Corp. (6701) Sales rose 37 percent to $29.6 billion in the year ended March 31, the fastest rate since the 12 months through March 2006.

Now, Yang is stepping up development of smartphones, tablets and Internet-ready televisions to widen the company’s offerings, following Apple and Samsung Electronics Co. Yang declined to comment on specific potential acquisitions in the Aug. 31 interview.

The company, whose headquarters are in Beijing and Morrisville, North Carolina, will introduce a wider array of phone models this fiscal year, making its strategy very different from a company like Apple that relies on the iPhone, Yang said.

Overtaking Apple

“Some companies use just one model to cover all the price bands and customer segments,” Yang said. “We will have multiple models to cover different price bands. We will have a much broader, wider product portfolio. Our development cycle will be much faster than our competitors.”

Lenovo, which started smartphone sales 2 1/2 years ago in China, will start selling the devices in India, the Philippines and Indonesia in “a couple of months,” Yang said. The phone business, which currently loses money, will become profitable in “a couple of quarters,” Yang said.

Lenovo overtook Apple during the second quarter for second place in smartphone sales in China, the world’s largest handset market. Lenovo jumped from seventh place in the first quarter to claim 11 percent of China’s smartphone sales in the three months ended June 30, market researcher IDC said Aug. 24. Apple’s share fell to 10 percent from 19 percent. Both trailed leader Samsung Electronics Co.’s 19 percent share, IDC said.

Acquisition is a “key strategy,” Geng Yang, a BOCI Research Ltd. analyst, wrote in a note dated today. The target may be in Europe, North America or a Japanese brand that enjoys “good market share” overseas, Geng wrote.

Market Share

Lenovo’s first-quarter profit rose 30 percent to $141.4 million, beating analysts’ estimates, as it expanded market share globally.

Lenovo increased shipments of computers including Thinkpad laptops by almost 15 percent in the second quarter, compared with a 0.1 percent decline in industrywide sales, Stamford, Connecticut-based Gartner Inc. said in July. That increased Lenovo’s market share by two percentage points to 14.7 percent in the period, almost matching Hewlett-Packard’s 14.9 percent, Gartner said.

Sales of PCs are expected to expand 0.9 percent in 2012 to 367 million units. Tablet sales should increase 54 percent to 107 million and smartphones may rise 39 percent to 686 million, according to a forecast by IDC.

Competition from tablets and smartphones may put that 1 percent PC growth at risk, according to Anand Srinivasan, an analyst with Bloomberg Industries.

“Lenovo is acknowledging the difficulties ahead in PC hardware by attempting to rapidly expand its” mobile portfolio, said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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