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1 | Page Contents Introduction .......................................................................................................................... 2 Ownership of Lenovo .......................................................................................................... 11 Current Position .................................................................................................................. 13 Protect & Attack Strategy.................................................................................................... 16 Benchmarking ..................................................................................................................... 18 Product Lines ...................................................................................................................... 19 Product Trends .................................................................................................................... 20 Cloud Computing ................................................................................................................ 21 Sponsorship ........................................................................................................................ 22 Competition ........................................................................................................................ 24 Competition: Dell................................................................................................................ 25 Competition: HP ................................................................................................................. 26 Competition: Acer, Toshiba, Asus ....................................................................................... 26 Competition: Apple ............................................................................................................. 27 Key success factors ............................................................................................................. 29 Pursue Outside Markets....................................................................................................... 30 Innovation ........................................................................................................................... 30 Key issues ........................................................................................................................... 33 What Lenovo Could Gain From Buying BlackBerry ........................................................... 36 Analysis and Discussion...................................................................................................... 37 Recommendations ............................................................................................................... 51 Conclusion .......................................................................................................................... 58 References .......................................................................................................................... 59 Appendix ............................................................................................................................ 62 Matrix Appendix A ............................................................................................................. 63 SWOT Analysis Appendix B .............................................................................................. 64 PEST Analysis Appendix C ................................................................................................ 65 PORTER’S Five Forces Appendix D .................................................................................. 66

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  • 1. 1 | P a g eContentsIntroduction .......................................................................................................................... 2Ownership of Lenovo.......................................................................................................... 11Current Position .................................................................................................................. 13Protect & Attack Strategy.................................................................................................... 16Benchmarking..................................................................................................................... 18Product Lines...................................................................................................................... 19Product Trends.................................................................................................................... 20Cloud Computing................................................................................................................ 21Sponsorship ........................................................................................................................ 22Competition ........................................................................................................................ 24Competition: Dell................................................................................................................ 25Competition: HP ................................................................................................................. 26Competition: Acer, Toshiba, Asus....................................................................................... 26Competition: Apple............................................................................................................. 27Key success factors............................................................................................................. 29Pursue Outside Markets....................................................................................................... 30Innovation........................................................................................................................... 30Key issues........................................................................................................................... 33What Lenovo Could Gain From Buying BlackBerry ........................................................... 36Analysis and Discussion...................................................................................................... 37Recommendations............................................................................................................... 51Conclusion.......................................................................................................................... 58References .......................................................................................................................... 59Appendix ............................................................................................................................ 62Matrix Appendix A ............................................................................................................. 63SWOT Analysis Appendix B .............................................................................................. 64PEST Analysis Appendix C ................................................................................................ 65PORTERS Five Forces Appendix D .................................................................................. 66

2. 2 | P a g eIntroductionThe following report is a company analysis of Lenovo, the largest PC Company in China, andthe fourth largest globally. A brief history is provided, followed by an analysis of the currentposition, competitors in the industry and key success factors and key issues that will propelLenovo to become more successful in the global PC industry. In addition, recommendationsare suggested to guide Lenovo to even more success. Financial forecasts show therepercussions of the recommendations and Lenovos overall financial structure.Lenovo Group Limited is today the fourth largest personal computer manufacturer in theworld, after Hewlett-Packard and Dell of the US, and Acer of Taiwan. Lenovo producesdesktops, laptops, servers, handheld computers, imaging equipment, and mobile phonehandsets. Lenovo also provides information technology integration and support services, andits QDI unit offers contract manufacturing. Lenovo also offers Internet access through itsFM365.com portal. Its executive headquarters are located in Beijing, Peoples Republic ofChina and in Morrisville, North Carolina, USA.Lenovo Group Limited (Chinese: ; pinyin: Linxing Jtun) is aChinese multinational computer hardware and electronics company with its operationalheadquarters in Morrisville, North Carolina and its registered office in Hong Kong. Includinghardware its mentioned above and IT management software and smart televisions. Lenovo isthe worlds second-largest PC vendor by 2012 unit sales. It markets the ThinkPad line ofnotebook computers and the ThinkCentre line of desktops.Lenovo has operations in more than 60 countries and sells its products in around 160countries. Lenovo was founded in Beijing in 1984 and incorporated in Hong Kong in 1988under its previous name, Legend. Lenovo is listed on the Hong Kong Stock Exchange and isa constituent of the Hang Seng China-Affiliated Corporations Index."Lenovo" is a portmanteau of "Le-" (from Legend) and "novo," Latin ablative for "new." TheChinese name (simplified Chinese: ; traditional Chinese: ; pinyin: linxing) 3. 3 | P a g emeans "association" (as in "word association") or "connected thinking" but can alsoimply creativity.1For the first 20 years of its existence the companys English name was "Legend" (in Chinese Lianxiang). In 2002, Yang Yuanqing decided to abandon use of the Legend brand namein order to expand outside of China, as the "Legend" name was already in use by many otherbusinesses worldwide, thus making it impossible to register in most jurisdictions. In April2003, the company publicly announced its new name, "Lenovo," with a large mediacampaign involving huge outdoor billboards and primetime television advertisements.Lenovo spent 18 million RMB (R (ren) stands for person M (min) stands for people together they mean people B (bi) means currency ) on television advertisements, whichwere broadcast daily for eight weeks. The billboard advertisements featured the Lenovo logoagainst blue sky with copy that read, "Transcendence depends on how you think." By the endof 2003, Lenovo had spent a total of 200 million RMB on rebranding.History19801981 IBM PCD introduces its first personal computer, the IBM PC1984 IBM PCD introduces its first portable computer, the IBM Portable PC, weighing 30pounds.With an initial capital outlay of only RMB200,000, (US$25,000) Lenovos foundingchairman Liu Chuanzhi, together with 10 like-minded colleagues, launches the NewTechnology Developer Inc. (the predecessor of the Legend Group) funded by the ChineseAcademy of Sciences.1986 IBM PCD announces its first laptop computer, the PC Convertible, weighing 12pounds.1http://en.wikipedia.org/wiki/Lenovo,2013-04-27 4. 4 | P a g e1987 IBM PCD announces the Personal System/2 personal computer.1988 Legends Chinese-character card receives the highest National Science-TechnologyProgress Award in China.Legend Hong Kong is established.19901990 The very first Legend PC is launched in the market. Legend changes its role from thatof an agent for imported computer products into that of a producer and seller of its ownbranded computer products. Legend PCs are ratified and accepted by the China TorchProgram.1992 IBM PCD introduces ThinkPad, the industrys first notebook with a 10.4 inch colorThin Film Transistor (TFT) display and a TrackPoint (red ball) pointing device.1993 Legend enters the Pentium era, producing Chinas first "586" PC. Legend establishes1+1 retail network.1994 IBM PCD introduces the industrys first notebook with integrated CD-ROM, theThinkPad 755CD.1995 IBM PCD introduces the butterfly keyboard.IBM PCD moves from Boca Raton, Florida, to Raleigh, North Carolina.Legend introduces the first Legend-brand server.1996 Legend becomes the market share leader in China for the first time.Legend introduces the first Legend brand laptop.1997 IBM PCD introduces the industrys first notebook equipped with a DVD-ROM, theThinkPad 770.Legend signs an Intellectual Property agreement with Microsoft, the most valuable deal evermade in China at the time. 5. 5 | P a g e1998 IBM PCD introduces the industrys first ThinkLight, a small light that illuminates thekeyboard in low-light work environments, such as onboard an airplane.The millionth Legend PC comes off the production line. Intel Chairman Andy Grove attendsthe ceremony, and takes the PC for Intels museum collection.Legend establishes the first Legend Shop.1999 IBM PCD introduces the industrys first mini-notebook, weighing under three pounds,with standard ports and a keyboard that is 95 percent of full-size.IBM PCD announces its exit from the retail business.IBM PCD introduces the industrys first PC with an embedded security chip.Legend becomes the top PC vendor in the Asia-Pacific region and heads the Chinese nationalTop 100 Electronic Enterprises ranking.Legend launches pioneering Internet PC, with its "one-touch-to-the-net" feature, whichenables millions of Chinese PC users to easily access the Internet.20002000 IBM PCD ships its 10-millionth ThinkPad notebook PC.Legend becomes a constituent stock of the Hang Seng Index - HK.Legend ranked in top 10 of worlds best managed PC venders.2001 An IBM notebook with an embedded security chip becomes the industrys firstnotebook to be certified by the Trusted Computing Platform Alliance, an industry bodysetting data security standards.Legend successfully spins off Digital China Co. Ltd., which is separately listed on the HongKong Stock Exchange.Legend appoints Yuanqing Yang as President and CEO.Legend first introduces "digital home" concept and launches accessories-enabling PC.2002 IBM PCD introduces ImageUltra and Rapid Restore, the first automatic data recoverytechnologies of their kind. 6. 6 | P a g eLegend launches its first technological innovation convention, Legend World 2002, whichopens up Legends Technology Era. Legend introduces its visionary concept for the futureof technological development and applications, its Collaborating Applications project, as wellas its strategies for implementing Collaborating Applications.Legends supercomputer, the DeepComp 1800 makes its debut. It is Chinas first computerwith 1,000 GFLOP (floating point operations per second) and Chinas fastest computer forcivilian use, ranked 43rd in the Top 500 list of the worlds fastest computers.2003 IBM PCD introduces the industrys first notebook with an extended battery life of upto 11 hours.IBM PCD introduces its ThinkCentre desktop PC line.IBM PCD introduces its Active Protection System, the industrys first notebook with anairbag for hard drive and data protection in case the system is dropped.IBM PCD ships its 20-millionth ThinkPad notebook PC.IBM PCD introduces its ThinkCentre desktop PC line.Legend announces the birth of its new "Lenovo" logo to prepare for its expansion into theoverseas market.Based on the collaborative application technology, Lenovo initiates IGRS Working Group, incooperation with a few large companies and the Chinese Ministry of the InformationIndustry, to promote the formation of the industrial standard.Lenovo launches a Tech RoadShow 2003 nationwide to promote Lenovos innovation.Lenovo successfully develops DeepComp 6800 in November 2003. It ranks 14th on theglobal list.2004 IBM PCD introduces the ThinkCentre ultra small desktop PC, no larger than a box ofcorn flakes.IBM PCD introduces the first notebook with an integrated fingerprint reader.IBM PCD ships its 100-millionth PC (counting both desktop and notebook computers). 7. 7 | P a g eLenovo becomes an Olympic worldwide partner. It is the first Chinese company to become acomputer technology equipment partner of the IOC.Lenovo decides to develop the rural market by launching the "Yuanmeng" PC series designedfor township home users.Lenovo and IBM announce an agreement by which Lenovo will acquire IBMs PersonalComputing Division, its global PC (desktop and notebook computer) business. Theacquisition forms a top-tier (third-largest) global PC leader.2005 Lenovo completes the acquisition of IBMs Personal Computing Division, making it anew international IT competitor and the third-largest personal computer company in theworld.Lenovo announces the closing of a US$350 million strategic investment by three leadingprivate equity firms: Texas Pacific Group, General Atlantic LLC and Newbridge CapitalLLC.Lenovo establishes a new Innovation Center in Research Triangle Park, N.C., to enablecustomers, business partners, solution providers and independent software vendors tocollaborate on new personal computing solutions.Lenovo introduces the industrys thinnest, lightest and most secure Tablet PC, the ThinkPadX41 Tablet.Lenovo introduces the first widescreen ThinkPad with embedded wireless WAN, theThinkPad Z60, available for the first time with a titanium cover.Lenovo becomes the worlds largest provider of biometric-enabled PCs by selling its one-millionth PC with an integrated fingerprint reader.William J. Amelio is appointed as CEO and President of Lenovo.2006 Lenovo introduces the first dual-core ThinkPad notebook PCs, improving productivityand extending battery life for up to 11 hours.Lenovo technology flawlessly supports the 2006 Olympic Winter Games in Torino, Italy,supplying 5,000 desktop PCs, 350 servers and 1,000 notebook computers. Lenovo also hostsseven Internet i.lounges for use by Olympic athletes and visitors. 8. 8 | P a g eThe first Lenovo-branded products outside of China debut worldwide.2007 The Beijing Organizing Committee for the Olympic Games selects a Lenovo-designed Olympic Torch as the winning design from among 300 entries. Named the Cloudof Promise, the Lenovo-designed torch will travel the world at the front of the globalOlympic Torch Relay.Lenovo delivers a supercomputer for a Formula One racing team that will provide eightteraflops of computing power.Lenovo introduces first EPEAT Gold Monitor with new visuals portfolio.2008 Lenovo enters the worldwide consumer PC market with new Idea brand.Lenovos ThinkPad X300 is called the best laptop ever by BusinessWeek magazine.Lenovo becomes the first PC manufacturer to announce a client virtualization platform.Lenovo provides a smooth, error-free performance at the Beijing Olympic Games. TheLenovo solution which included more than 30,000 pieces of equipment and nearly 600Lenovo engineers powered the largest sporting event in history.2009 Lenovo leads PC industry in using recycled material.Lenovo becomes senior sponsor of Computing Equipment and System Operation Service forthe World Expo 2010 in Shanghai.Lenovo debuts Enhanced Experience for Windows 7, delivering significantly betterperformance for the new operating system.Lenovo sells its 1 millionth Idea Product.2010 Lenovo achieves its highest ever worldwide market share and becomes the worldsfastest growing major PC manufacturer.Lenovo introduces LePhone, its first smartphoneLenovo sells its 60 millionth ThinkPad2011 Lenovo forms Mobile Internet Digital Home (MIDH) business unit to attack growingopportunity in consumer devices such as smartphones, tablets and smart TV 9. 9 | P a g eLenovo forms a joint venture with NEC, creating the largest PC company in Japan.Lenovo acquires Medion, a PC and consumer electronics company based in Germany,substantially increasing presence in consumer market in Western Europe.Forbes names Lenovo one of the worlds 100 Most Reputable Companies2012 Lenovo forms a joint venture with EMC to selling servers in China and developstorage solutions Lenovo acquires Stoneware, a software firm focused on cloud computingLenovo announces it will acquire CCE, a leading consumer electronics company in BrazilLenovo sells its 75 millionth ThinkPad2.The Legend Behind LenovoIn 1981, IBMs first PC was introduced, which launched the PC revolution (Lenovo, 2010).IBM had an open architecture policy, which allowed others access to the instructions andspecifications that IBM had created to build its very own PC. After the development ofIBMs computer, interest in the PC industry drastically increased.Lenovo was established in Beijing, China, by Liu Chuanzhi and ten engineers, who weremembers of the Chinese Academy of Sciences in 1984 (Lenovo, 2010).Legend created their very first product, a Chinese character card for computing in 1985,which could read English software and process commands in Chinese characters. In 1988, theChinese character set received the National Science Technology Progress Award (Lenovo,2010).2http://www.lenovo.com/lenovo/us/en/history.html,2013-04-271981IBM launches PCrevolution1984Legend is founded inChina1985Legend creates firstproduct, a ChineseCharacter Set 10. 10 | P a g eLargest PC Manufacturer in ChinaThe very first Legend PC was launched in 1990. At that time Lenovo changed its role frombeing an agent of imported computers, to producing and selling their own brand of computerproducts (Lenovo, 2010).Legend became a publicly traded company on the Hong Kong stock exchange in 1994. TheLegend PC division was formally established that year. After only four years of launching itsfirst PC, Lenovo manufactured its one millionth PC (Plunkett, 2010).Lenovo became the largest PC producer in China, producing 770,000 computers per year in1998, outperforming IBM (Gonela, 2009).1990Legend launched itsfirst PC1994Legend builds onemillionth PC; andgoes public in HongKong1998Legend becomeslargest PCmanufacturer inChina2002Legend beginsmaking MobilePhones2003Legend is renamedLenovo2005Lenovo acquiresIBMs PC Division 11. 11 | P a g eThe Convergence of IBM and LenovoAt the beginning of the millennium, Legend entered the Mobile Phone market and expandedinto different categories of the technology industry.In preparation for the global market, Legend adopted the name Lenovo in 2003. They tookthe Le from Legend to honor their roots and added novo, the Latin word for new, torepresent the innovation at the core of the company (Lenovo, 2010).The most important year for Lenovo was in 2005. They acquired IBMs personal computingdivision, making them the third largest computer company in the world (Plunkett, 2010).Lenovo became the sole provider of IBM personal computers, but IBM still continued tofinance and provide maintenance services for their PCs.Ownership of LenovoThe majority of Lenovo is owned by Legend Holdings, which is controlled by the Chinesegovernment. Legend Holdings is a Chinese investment company which was formed by theChinese Academy of Sciences that invests in IT, investments, and real estate.Lenovo announced a strategic investment worth $350 million with three leading equity firmsin 2005, using part of the investment towards purchasing the IBM PC business ("US FirmsInvest," 2005). Texas Pacific Group (TPG) invested $200 million, while Newbridge CapitalLCC invested $50 million. TPG is one of the largest private equity investment firms in theworld, and they were also the creators of Newbridge Capital. Newbridge is an investmentcompany that invests in emerging markets, particularly in Asia. General Atlantic LLC, thatIBMLenovo 12. 12 | P a g eprovides capital and strategic support for growth companies, invested in $100 million ("USFirms Invest," 2005) .IBM also has a significant portion of ownership in Lenovo. When Lenovo purchased IBMsPC division in 2005, IBM became the owner of 18.9% of Lenovo (Lenovo, 2010). IBM hasdecreased their shares of ownership in Lenovo, but they still provide Lenovo with supportservices for Think brand products.Percentages of Ownership 13. 13 | P a g eCurrent PositionLenovo is positioned in three market segments: China, emerging markets (excluding China)and mature markets. The following section will explain the whereabouts of the markets, andLenovos future plans in the different regions. Before 2009, the main markets were classifiedas Greater China; Europe, Middle East and Africa; Americas; and Asia Pacific (excluding 14. 14 | P a g eChina). Lenovo consolidated their market segments to have a more streamlined businessapproach. Over the last two years, Lenovo has gained the fourth largest market share in theworld, and continues to be the largest producer of PCs in China. After a brief description ofthe market segments, current strategies are included to give insight on their position in theglobal market.China is by far the largest source of revenue for Lenovo. As of 2010, China held 47 percentof their total revenue, which is an increase of more than 6 percent from the prior year. About3.5 percent of the sales are contributions from about two months of Lenovo Mobile revenues,Lenovos recent re-acquisition of the mobile internet company in November 2009 (Lenovo,2010). In Lenovos current Protect and Attack strategy, China is a main focus. Lenovosplan is to protect China, grow revenues and expand in the market in which they have hadgreat success historically. Lenovo is currently the largest manufacturer of PCs in China, anddespite the global crisis that has taken a toll on nearly all other markets, Lenovo hascontinually had strong demand. Demand was driven by economic stimuli and rural subsidyprograms. Additionally, unit shipments grew 37.4 percent from 2009. Lenovo is currentlytargeting rural markets, government stimulus projects, and SMBs, (small-and-medium-sizedbusinesses). Lenovos market share in the PC industry in China grew to 33.4 percent. Chinawas the only market segment to have gains in 2010. In fact, from 2009 to 2010, the Chinasegment operating profit increased $68 million, which was the only reason Lenovo turned aprofit in 2010. The emerging market and mature market segments both had net losses(Lenovo 2010/11 Annual Report).Lenovos current strategy involves attacking the mature markets which include: NorthAmerica, Western Europe, New Zealand, Canada and Australia. Mature markets are usuallyfairly stable and lack significant growth and innovation. Historically, these markets havebrought in steady revenues throughout the past decade. However, recent revenues have beenlargely off-set by large expenses, and economies in many mature markets have been severelyweakened by the global financial crisis. Over the last four years, sales in mature markets havedecreased as a percentage of total revenue. In 2006, about 51 percent of the companies salescame from mature markets, while at the year-end 2010, the percentage of sales decreased to37 percent. However, sales grew 11.43 percent in 2010 (Lenovo 2007 Annual Report, 2010Report). 15. 15 | P a g eAs of Q1 2011, Lenovo increased their unit shipments year-to-year by 49 percent andimproved their market share to 5.6 percent in mature markets. Lenovo also improved inprofitability. Due to the financial crisis in 2008, Lenovo had a net operating loss of $107million at the end of the 2009 year, and a net operating loss of $97 million at the end of the2010 year. However, as of the fourth quarter of 2010, the mature market segment only lost$6 million, which is a huge improvement from a $37 million loss in the fourth quarter of2010(2009/2010 Annual Report). The improvement in the Mature Market is due to the strongshipment growth and cost cutting measures along with improving economies (Lenovo, 2010).Lenovo is looking to bring a profit in the mature markets in the coming years (Lenovo2010/2011 Q1 Report).Within the last year, Lenovo has implemented its Mature Markets Group, which essentiallyunites many of the markets into one entity for cost cutting purposes. The Mature MarketsGroup was also created in effort to streamline the business structure. Lenovo also formed aChannel Partner Organization that allows Lenovo to improve their relations, furtherimproving profitability. Their attempt to show their partners their commitment to its BusinessPartner Channel bas been through holding partner events throughout the year to improverelations (Lenovo 2010 Annual Report).The emerging market segment currently holds the smallest percentage of revenue for Lenovo.After the 2010 year, Lenovo held 15 percent of the yearly sales of $16,605 million, whichamounts to about $2,640 million. The emerging markets include: Africa, Asia Pacific(excluding Japan, Australia, New Zealand), Central and Eastern Europe, Hong Kong, India,Korea, Latin America, Mexico, Middle East, Pakistan, Russia, Taiwan and Turkey. China isnot included because it is the homeland country. Unlike mature countries with slow growthand innovation, emerging markets are in a state of rapid growth, with much potential forrevenues. In both 2009 and 2010 Lenovo posted large losses of $107 and $97 millionrespectively. Like the mature markets, losses were largely due to the global financial crisis.Lenovo is however recovering. After the first quarter of 2010, Lenovos unit shipmentsincreased 69 percent from the prior quarter last year. The crisis is letting up and growth isnow starting to take a toll. Likewise, Lenovos emerging market share has increased 140basis points to 5.4 percent. Lenovos focus in the emerging markets is primarily onconsumers, so they launched more Idea products (Lenovos consumer PC line) to address thedemand for consumer PCs (Lenovo 2010/11 Annual Report). 16. 16 | P a g eLenovo is currently implementing the protect and attack strategy, a term coined in 2009 toexpand their market shares globally. Essentially, the strategy is to protect their core businessin the Chinese market for PCs, and expand in emerging markets and mature markets.Globally, Lenovo holds about 10 percent of the PC industry. Currently, Lenovo is the largestPC manufacturer in China with a market share of 28.7 as of Q1 2010. Revenues from theChinese market alone made up about 48 percent of Lenovos total revenues as of 2010(Lenovo 2010/11 Annual Report).Lenovos success in China can be attributed to several reasons. Firstly, Lenovo is a China-based company. Since 1984 Lenovo was in the business of producing home computers inChina, and were the first to do so (Lenovo, 2010). Since 1997, they have been the largestproducer of PCs in China. Additionally, they have held a strong brand name and forecastsshow they will continue to be the strongest PC company in China (Mirae Asset, 2010). Evenafter the entrance of HP and Dell into the Chinese market, Lenovo has held their ground.Protect & Attack StrategyThe attack part of the strategy involves mainly emerging markets, but also mature markets.Lenovo is focusing on SMB and consumer products to increase their market share. Lenovoalso attacked Lenovo Mobile Communication Technology Ltd. in January of 2009 andrecorded about $91 million in revenues in about two months in early 2010 before the year 17. 17 | P a g eend. Much of the success of Lenovo Mobile Communication Ltd. is in the success ofLePhone, Lenovos smart phone that is competing with Apples iPhone in China. The Groupsaw an increase in revenue in emerging markets, but due to the change in classification ofgeographic segments, further extraction of regional revenue is very difficult.Additionally, The Lenovo Way has been a topic of discussion for the entire Lenovocompany. From the top down, Lenovo is implementing a new idea to streamline theircompany culture in order to increase efficiency and innovation (Lenovo 2010 AnnualReport). The Lenovo Way adds core values to their current protect and attack strategy toresult in executing excellence and achieving objectives. The way includes commitmentand ownership to improve overall profitability and increase productivity (2009/2010 AnnualPresentation).According to Dow Jones & Company, Inc, Lenovo is considering opportunities foracquisition in China, specifically in the mobile internet sector, global consumer computermarket and developing regions (WSJ, 2010). Although at this time, Lenovo has not made anymoves to acquire. 18. 18 | P a g eBenchmarkingAfter comparing Lenovo to its top competitors, many aspects of the companies stand out.One of the most important financial aspects is the gross margin. Lenovos gross margin ispressuring all parts of the business. Even after drastic cost-cutting procedures in 2009 and2010, Lenovos gross margin is the lowest. The challenge will lie in where to makeadjustments. Lenovo could raise prices, further increasing gross margin, but that maydecrease sales and overall profitability. Competitors operations are large enough to utilizeeconomies of scale, in which they can lower their per-unit costs.Additionally, Lenovos research and development costs are also the lowest by a long-shot.Lenovo, being the largest PC company in China should be concerned, especially because HPand Dell are continuing to expand their presence in China with considerable force. Lenovo,even with a home-court advantage ,will have to step up their game to compete with thepower-houses of the PC industry.Lenovos leverage is also a number to consider. Having a leverage of 5.58 is relatively highto other PC manufacturers, except for Dell. The high leverage could add a level of risk tocurrent and future investors. The leverage could give investors potential for significant gains,but for a large company like Lenovo, its important that they consider the long-term well- 19. 19 | P a g ebeing of the company. Leveraging such a significant amount of their finances could over timepose a huge risk for Lenovo.Lenovo does seem to have a fairly illiquid position against its competitors, but the risk is notas apparent after digging deeper. The reason they have more current liabilities than currentassets is in their payment structure of trade payables. Their current ratio is below 1, whichindicates they cannot cover their short-term obligations with their current assets. However,their days in trade payables is 77 days and days sales outstanding and days sales in inventoryare both about 22 days. This means that Lenovo collects their receivables much faster thanthey expend their payables, thus showing an illiquid position.Product LinesThe ThinkPad laptop is well known for its outstanding performance and reliability, its theultimate business tool. This laptop offers small-business solutions, enterprise and educationsolutions, powerful mobile workstations, durability, ergonomic designs, and tools that willsave businesses time and money. Lenovos ThinkPad X201 won Best Business Laptop,from Computer Shopper in 2010 (Lenovo, 2010).The ThinkPad was 61.2 percent of Lenovos sales, as of Q1, 2009/2010, bringing in largestamount of the companys revenue. This line of PCs primarily target commercial consumers.Lenovos Think products grew 9 percent YTY, which was better than the global industryaverage. It also outperformed the PC Market with 15 percent unit shipment growth this pastyear (Lenovo, 2010). 20. 20 | P a g eThe IdeaPad is a high quality computer offered at a convenient price to consumers. Its forbusiness and pleasure, according to Lenovo. This computer has high definitionentertainment and security tools for consumers. Lenovo offers light notebooks and touchscreen tablet notebooks in this line of their PCs. Lenovos IdeaPad Y550 won Best BudgetLaptop, from About.com in 2009. (Lenovo, 2010).The IdeaPad was 34.5 percent of Lenovos sale, as of Q1, 2009/2010, bringing in the secondlargest amount of the companys revenue. Shipments increased 86 percent YTY and salesincreased 94 percent (Lenovo, 2010).Product TrendsOn Lenovos Q1 results, for 2009/2010, desktop computers accounted for 33.2 percent ofLenovos total sales, notebooks accounted for 60.5 percent, mobile devices accounted for 3.5percent, and other products accounted for 2.8 percent (Lenovo, 2010).Consumers are becoming less interested in desktop computers as technological trends arechanging. Consumers and small businesses are now looking for more portable computerswith access to wireless internet. That way they have easy access to the internet wherever theymay be. As a result, notebooks have become the core source of revenue for Lenovo.Notebooks will continue to be a strong source of revenue, but there is also great potential inthe mobile internet industry.IDEA34.5%THINK61.2%Mobile3.5%Others0.8% 21. 21 | P a g eLenovo realized the PC and mobile internet phone industries were converging, so theyrepurchased Lenovo Mobile for twice the price they sold it for just two years ago (Schuman,2010).The company does not believe that mobile internet devices will replace notebooks because ofthe sizes of keyboards and screens, but there will be an increase in the demand for mobileinternet devices within the next few years.Cloud ComputingCloud computing is a technology that uses the internet and central remote servers to maintaindata and applications. Cloud computing is a fast-rising concept that allows consumers andbusinesses to rent or use numerous IT services without installation. Additionally, businessescan acquire these applications on any computer as long as the computer has internet access.This technology allows for much more efficient computing by centralizing storage, memory,processing, and bandwidth at a low cost.Desktop33.2%Notebook60.5%Mobile3.5%Others2.8% 22. 22 | P a g eIn a chief information officer survey by Gartner, about 1,600 CIOs managing over $120billion of IT spending stated that cloud computing is their second most important priority thisyear (Singapore, 2010).Just recently, Lenovo has announced the companys cloud computing strategy and named itSecure Managed Client. Lenovos cloud computing strategy consists of offering a number ofcloud computing products, ranging from its LePhone, ThinkPad and IdeaPad laptops,desktops, enterprise servers and large public computing facilities (Xinhua News Agency,2010). According to the company, Secure Managed Client will help businesses to reduce ITcosts and security risks by turning off hard drives and storing all data in a non-server remotelocation. Lenovo states that cloud computing can reduce the average $120 a month thatenterprises spend to fully manage a PC to as low as $70 (Channel Insider, 2010). Thecompany hopes their vision will appeal to enterprises and both small and medium-sizedbusinesses. Mr. Chen Xudong, Lenovos vice-president and general manager of the Chineseoperations, said Lenovo will be offering a simple cloud solution with a flexible andstreamlined way to manage companies complex IT environments. Lenovo plans tointroduce more cloud terminals in 2011 (Xinhuas China Economic Information Service,2010).Liu Jun, senior vice president of the company mentioned a cloud terminal, internet TV. Mr.Jun believes that capturing the internet TV market will post an explosive growth of over 336percent each year (Xinhuas China Economic Information Service, 2010).SponsorshipLenovo did not want to be seen as just a Chinese company, but as a global brand with a highquality computer (Clifford, 2008). This is highly concentrated on building brand awarenessbecause not many consumers know of the company outside of China. Lenovo had decided toassociate themselves with sports to not only establish themselves as a global brand, but toalso associate themselves with values that are closely related to the company. That is exactlywhat the Olympics and Formula One Racing provided for Lenovo (Ladousse, 2009). Creatinga sponsorship with the Olympics and Formula One provided Lenovo with the opportunity tomarket their product worldwide. 23. 23 | P a g eLenovo was a sponsor for the 2006 Winter Olympic Games in Turin, Italy and the 2008Summer Olympic Games in Beijing, China (Clifford, 2008). Lenovo provided the Olympicsas well as other partners of the Olympics computers, servers, engineers, technicians and avariety of other technologies. Lenovo also won the Olympic torch design beating out over300 competitors for the 2008 design. The torch was named the cloud of promise (Lenovo,2010). Lenovo is able to associate their product as a world class brand by sponsoring theOlympics.Lenovo contributes to Formula Ones business in every way possible. They provide theVodafone McLaren Mercedes Team with technology to help improve race teamperformance, engineering and testing, product and development and even to start the carsbefore races and test sessions (Ladousse, 2009). Formula One has such a large dependence ontechnology, which is why this partnership is so successful. Lenovo is able to associate their 24. 24 | P a g eproducts with top performance and high reliability by providing the Vodafone team with thetechnology they need to win.CompetitionThis section deals primarily with Lenovos main competitors. Other computer companies aretrying to maximize their market share at home while also reaching abroad, beyond theircountrys borders. China is seen as one of the most profitable emerging markets in the world,and the PC industry has taken great interest to say the least. The following briefly discusseseach of the global top five PC manufacturers as well as the popular Apple corporation.Lenovo was already the largest PC maker in the worlds most populous country, China, whenit acquired IBMs PC operations for approximately $1.75 billion in 2005 (Hoovers, 2010).The deal allowed Lenovo to have exclusive access to the prestigious IBM logo for five years,along with permanent ownership of the ThinkPad brand of computers. IBM helped pioneerthe PC industry in the 1980s, but more recently its PC division has dragged down on theirprofits, a factor that led to their decision to sell off the branch. Now IBM can focus more onits services and software, while simultaneously boosting Lenovo into the global PC market(Knowledge@Wharton, 2005). Lenovo currently owns approximately 10% of the worldwidePC market, and 28.6% of the market share in China, where it generates about half of its sales(Fletcher, 2010).Lenovo HP Dell AcerAsusandToshibaApple 25. 25 | P a g eCompetition: DellAt the moment, Lenovo is the fourth-largest PC maker in the world by shipments behindHewlett-Packard, Dell, and Acer (Fletcher, 2010). Although Lenovo is number one inChinas market, the competition for this coveted position is becoming more intense. Dell inparticular is about to turn up the heat and implement some significant changes in its overseasstrategy. China is the companys largest source of revenue besides the United States, and intheir last quarter, their revenue from China grew 52% from the year before. Dell now ownsabout a 9% share of the Chinese computer market. Just this month Dell announced it wouldbe shutting down its large manufacturing plant in Winston-Salem, North Carolina, and it willbe investing $100 billion in China over the next decade. Dell and Lenovo both make laptops,netbooks, desktops, servers, and now they have started to create smart-phones (Local TechWire, 2010). Dell also ships almost twice as many units as Lenovo on a global scale, whichputs Lenovo at a disadvantage in gross margin and per-unit research and development andadministrative costs (Technology Business Research, 2008). 26. 26 | P a g eCompetition: HPHP is the worlds largest PC manufacturer by sales, and it was the second largest PC vendorin China. Now Dell and HP are both at about the same level with about an 8 or 9 percentmarket share as seen in the graph on the previous slide. They are trying to strengthen theirpresence even more, and are in the process of negotiating a deal with Chinas three mobilecarriers China Mobile, China Unicom, and China Telecom to start offering HPs low costnetbooks for sale (Chao, 2009). HP has a distinct advantage over Lenovo on a global scalebecause they sell more than twice as many units as Lenovo, and enjoy many of the benefitsthat come with economies of scale like lower costs associated with each unit (TechnologyBusiness Research, 2008). Interestingly, David Roman, a former Apple executive and formervice president of HPs worldwide marketing communications, was just hired by Lenovo thisyear. Mr. Roman was the man behind HPs acclaimed The computer is personal againadvertising campaign. Lenovos brand name may gain a significant boost with the help ofthis well-respected marketer (Madden, 2010). HP is also looking to open many large-formatbranded stores throughout the Asia-Pacific region, a strategy that proved successful in theU.S. and in India where it already has more than 1,000 retail outlets (Hicks, 2008).Competition: Acer, Toshiba, AsusThe Taiwan-based company Acer just fell into third place this year behind HP and Dell as thetop leaders of the PC industry (Sherr, 2010). Acer acquired the well-known Gateway and 27. 27 | P a g ePackard Bell brands in 2007 for $710 million which greatly increased their market share inAmerica and Europe. This also gave Acer access to popular retailers like Best Buy andCircuit City. Lenovo also had their eyes on Packard Bell, which had a strong presence inEurope and would have strengthened Lenovos brand image to consumers outside of Chinabefore Acer took control. Thankfully for Lenovo, Acer doesnt have nearly as strong apresence in the Asian market with 6 percent market share compared to Lenovos nearly 30percent. However, Acers CEO J. T. Wang says that, Lenovo is strong in China, but we aregrowing everywhere. The senior vice president of Lenovo, Ravi Marwaha says, The mostimportant thing is to make sure Lenovo continues to grow in China. The Chinese market isthe companys primary concern and will act as a growth engine driving Lenovos expansionin global markets (Gonela, 2009).During the second quarter of 2010, Asus and Toshiba tied for fifth place in the worldwide PCmarket. Asus is a Taiwan-based company and it is notable for being the worlds largestmanufacturer of computer motherboards. In 2008 it made a big appearance in the consumermarket when it released the Eee netbook, one of the most attractive and inexpensivecomputers available. This wildly successful product helped launch Asus into one of thebiggest computer manufacturers. Asus is quickly becoming a considerable threat as theirshipments rose 80 percent from the second quarter of 2009 to the second quarter of 2010,nearly quadruple the industry average (Ogg, 2010). The Toshiba corporation is based inTokyo, Japan and they are known for their computers as well as medical equipment,transportation systems, appliances, and a variety of other products. Because of their widebreadth of products, Toshiba may have an advantage over Lenovo in that they have the powerto drop some of their business units and pour more funds into their computer manufacturingunit. Toshibas shipments in the lucrative U.S. market grew 50 percent in the first quarter ofthis year (Pettey, 2010).Competition: AppleApple on the other hand is missing a huge opportunity in the Chinese market says Lenovochairman Liu Chuanzhi. We are lucky that Steve Jobs has such a bad temper and doesntcare about China. If Apple were to spend the same effort on the Chinese consumer as we do,we would be in trouble (Hille, 2010). Apple has not responded to Mr. Lius comments butthey are planning on opening a new store in Shanghai along with 25 other retail outlets in the 28. 28 | P a g ecountry by the end of next year. Part of the reason Apple doesnt have much of a presence inChina is because only a few stores are authorized to sell their products. The iPhone forexample, is only legally available through China Unicom, the countrys second-largestmobile phone operator, and its selling price is much higher than the normal going rate.China Unicom is the Chinese equivalent of the American telecom network AT&T, the solecell-phone provider for the iPhone in each companys respective country. China Unicom isfar behind market leader China Mobile, and it is notorious for its bad service, whichnegatively affects Apples image (Einhorn, 2010). The iPhone is also in direct competitionwith Lenovos smart phone, LePhone, which is customized for Chinese users. Apple has theadvantage of having over 100,000 content providers that create apps for the iPhone, whereasLePhone only has 1,000 (Hille, 2010).HP; 18.1%Dell; 12.8%Acer;12.4%Lenovo, 10.1%Toshiba, 5.4%Asus; 5.4%Apple; 4.9%Others ; 30.9% 29. 29 | P a g eSource http://prafulla.net, April 14, 2013 5:36 amKey success factorsFor Lenovo to continue making profits and continue competing against its massivecompetitors, there are several key success they must reach in order to see the companyprosper. These factors include: pursuing markets outside China, becoming more innovative,reaching economies of scale and continuing their strong presence in China. 30. 30 | P a g eWe focus every day on meeting our commitments and delivering results. Guided by a clearstrategy, we are able to protect our core businesses and attack new opportunities for growthin any market worldwide. Our business requires exceptional execution every day, in everymarket, for every customer-Yang YuanqingPursue Outside MarketsIn order to continue to grow outside of China and keep up with competitors in the PCIndustry, Lenovo is concentrating on pursuing outside markets. This includes emergingmarkets such as Asia Pacific (Excluding Japan, Australia and New Zealand) and India as wellas mature markets such as North America and Western Europe. This presented anextraordinary opportunity for the global success of Lenovo. In the 2009/2010 Q1 results,Lenovo achieved for the first-time ever, double-digit market share worldwide increasing theirglobal PC market share to 10.2 percent (Lenovo, 2010).As a result of Lenovos global strategy to pursue outside markets, emerging markets salesrose 50 percent and mature markets sales rose 39 percent (Lemon, 2010). As Lenovocontinues to pursue this strategy, the company will gain a stronger global presence as well asincrease market share in emerging and mature markets.Our performance was strong globally, Lenovo has a clear strategy when and where tofocus on gaining share, and when and where to focus on maximizing profit, and weexecuted that strategy well.-Lenovo Chairman, Liu ChuanzhiInnovationLenovo has made a commitment to become well known for their innovation in products andtechnology. Our goal is to put more innovation in the hand of more people, so they can domore amazing things (Lenovo, 2010). Of the top 50 most innovative companies of 2010,Lenovo ranked 30 according to Bloombergs Business Week (Boston Consulting Group,2010). This is a great achievement considering Lenovo is a much younger company than theircompetitors. 31. 31 | P a g eAt this past years Consumer Electronics Show, Lenovo stood out with several of theirindustry first products such as the IdeaPad U1, the worlds first hyrbid notebook, theIdeaCentre A300, the worlds thinnest all-in-one PC and IdeaPadS10-3t, the worlds firstmulti-touch capacitive tablet netbook (Understanding Lenovo, 2010).Lenovo is also expanding into new categories such as the mobile internet market. Their latestproduct was their LePhone Smartphone, which is only available in China. This device runson the same program as the Google Android OS. It is now the number one preferred mobiledevice in China (Lenovo 2010/11 annual report).-First modern laptop to fly inspace-First with a spill-resistantkeyboard-First with built-in CD-ROM-First with built-in DVD-ROM-First with built-in wirelesscapabilities-First with embedded securitysystem-First with built-in fingerprintreader-First dual-screen mobile workstationRecord ForInnovation 32. 32 | P a g eLenovo has many plans for the future of the company. They are planning to release a hybridcomputer sometime in the near future, a game console in 2011, and they are currentlyworking on the development of an Android tablet PC.A hybrid personal computer, IdeaPad U1, is planned to be launched in China in early 2011(Lenovo Sets Hybrid, 2010). This will be the industrys first hybrid PC, which has adetachable screen that functions as a netbook computer as well as tablet. By fusing thefunctionality of a notebook with the slate tablets rich multi-touch entertainment and mobileInternet experience, U1 provides consumers the freedom to choose the device they prefer forany activity, Lenovos vice president Liu Jun stated (Lenovo, 2010).Lenovo also saw an area of growth potential in the video game console market. They arelaunching a game console, called eBox, with Beijing Eedoo Technology Ltd, in 2011(Lenovo to Launch, 2010). The eBox does not use a physical game controller. Instead, thegame console is controlled by movements and gestures detected by a camera. This devicewill integrate a cloud computing software architecture, providing interactive games for users(Lee, 2010).An Android tablet, known as LePad will be launched sometime in the near future. Thisdevice is similar to the iPad that was recently introduced by Apple. The company has yet toenclose a launch date, as the device is still under development but they do believe that tabletPCs will be a smaller portion of the market at least for the next five to ten years.Lenovo plans to launch new technology to keep up-to-date with the technological trends, butthey will still maintain their focus on notebooks and desktops (Lenovo to launch tablet,2010).IdeaPad U1 IdeaCentreA300IdeaPadS10-3t LePhone 33. 33 | P a g eKey issuesLenovo is in a position to face many challenges in the PC market. The emerging markets arestill in a rough financial position. Likewise, mature markets are still lacking financial strengthand are easing out of recession. Also, China is the fastest growing country in the world, soLenovo must be quick to adapt and respond to movements in the market. Without therevenue from China, Lenovo would be in a world of trouble. In 2009, Lenovo recorded a lossof $225 million, making it the biggest loss in the history of the company (Lenovo, 2010).Fortunately at the year end of 2010, Lenovo pulled out a $129 million gain. The followingsection will debrief the challenges Lenovo is facing and will potentially face in the nearfuture.Weak Global Brand ImageDespite Lenovo being the fourth largest computer company in the world, their brand image isnot well known outside of China. Many Chinese companies have not succeeded in marketingtheir products in other countries very well, mainly due to their lack of advertising,sponsorship, and the perceived quality of Chinese products. Foreign consumers may have astereotypical notion that Chinese products are cheap and low quality because of theabundance of dollar store products that are stamped with the well known Made in Chinamark. This stigma may negatively affect Lenovo, though their recent purchase of the PCdivision of the American company IBM may help that.Hybrid IdeaPadU1LePad AndroidTableteBox GameConsole 34. 34 | P a g eLenovo has also not advertised their products in other countries well enough for consumers toidentify the brand. This puts Lenovo at a competitive disadvantage in their pursuit of newmarkets where industry giants like HP and Dell already have a well known presence.A variety of different marketing strategies have been implemented to strengthen brandawareness, including the exposure Lenovo received in its purchase of IBMs personalcomputing division. The company also renamed itself in 2003 from Legend to Lenovo, theysponsored the 2006 Winter Olympics and the 2008 Summer Olympics, and they continue tosponsor Formula One Racing. Each of these events have helped increase Lenovos brandawareness, but there are many consumers in the market that are still unaware of who thecompany is. In order to dissociate itself from not be recognized as a low quality product,Lenovo has stepped away from being portrayed as a Chinese company. Lenovo has blendedtheir management staff to include original Chinese managers as well as American managerswho used to be a part of IBM. They have also established several headquarters andmanufacturing plants in multiple countries around the world.Gross Profit Margin PressureCurrently, Lenovos cost of sales is extremely high; nearly 90 percent. This indicates that themark-up on Lenovos products is very low. This is mainly attributable to the emerging andmature markets. For the last 2 years, both the emerging market segment and the maturemarket segment have had losses. In the 2009 year, Lenovo reported a combined operatingloss of $244 million and in 2010 a loss of $162 million in the emerging and mature markets.The decrease in losses in 2010 can be attributed to their significant cost-cutting measures andincreased overall sales. Lenovo decreased their selling, general and administration costsnearly $350 million. A portion of this is their 11 percent staff layoff, sales and distributionexpenses were reduced by $100 million, administrative and research and developmentexpenses decreased $66 million, and other operating expenses were lessened by $170 million(SinoCast Computers & Electronics Beat, 2010). However, sales increased from 15 billion in2009 to over 16.5 billion in 2010. Additionally, their PC shipments rose 48 percent in China,outperforming the market growth rate of 21 percent. Even still, economies in the emergingmarkets and mature markets are hurting Lenovos profitability. Lenovo has had to keep pricesdown in effort to keep sales up. In those segments they have increased profitability, but untilthe economies gain significant strength, gross margin will remain under pressure. 35. 35 | P a g eWhile the strengthening economies will add profits to Lenovos operations, economies ofscale will also significantly increase their gross profit margin and ultimately their net income.Economies of scale is when a company such as Lenovo can produce mass amounts of theirproduct in order to decrease per unit costs. Companies such as Dell and HP have operationsmuch larger than Lenovo and with gross margins of 18 and 24 percent respectively, they havemuch more control over price and less strain on other parts of their operations.Competition: Dell & HPThe PC industry is currently one of the most competitive industries in the world. Since thePC revolution in the 1980s, PC manufacturers have been constantly striving to produce thenewest, fastest, most innovative machine. Lenovo was born in China, one of the fastestgrowing countries in the world, and they have a significant market advantage over itscompetitors there. They have a strong brand image in their home country and have had notrouble bringing in high revenues.However, industry giants HP and Dell have already started infiltrating China and have nointentions of letting up. They are trying to grasp the opportunity of increasing their profits,especially in times like this, when many of their historically successful countries arestruggling financially. Lenovo now has to compete both at home and abroad with some of thestrongest companies in the world. Dell already owns a 9% share of the PC market in China,and over the next decade they plan to invest around $100 billion into the country. HP ownsan 8.2% share and they are currently the biggest PC manufacturer in the world. These twocompanies appear to be the biggest threats to Lenovo both globally and in China.Dell and HP both have higher revenues than Lenovo, and have the ability to pursue a widervariety of options with all their money. It isnt as big of an issue for them to penetrate aforeign market like China. Obviously Lenovos funding is more limited, so they need to findan efficient balance for their expenses between the Chinese market and outside markets. Thegraph on the next slide illustrates the differences in purchasing power between the threecompanies.The graphs depict the worldwide total amounts of revenue, gross profits, and netincome of HP, Dell, and Lenovo, which are the top three PC companies in China. ClearlyDell and HP have a lot more capital to work with compared to Lenovo. The distribution ofspending power between the three has remained pretty consistent over the past several years.The fiscal year ended 2011 is not yet complete and is therefore not portrayed. 36. 36 | P a g eWhat Lenovo Could Gain From Buying BlackBerryLenovo (992) means ( lenovo group ltd (992:Hong Kong)) executives cant seem to stoptalking about BlackBerry (BBRY) means (research in motion (BBRY:NASDAQ GS) . First,the Chinese computer makers chief financial officer, Wong Wai Ming, told BloombergNews in January that the company was looking at all opportunities, including the Canadiancompany formerly known as Research in Motion. Now BlackBerrys share price is risingbecause Lenovo Chief Executive Officer Yang Yuanqing suggested his company is seriouslyconsidering acquiring it. Yang told French financial newspaper Les chos that a deal withWaterloo (Ontario)-based BlackBerry could possibly make sense, but first I need to analyzethe market and understand what exactly the importance of this company is.A Lenovo spokesman says the company has not done any specific evaluation or activity fora BlackBerry deal. Lenovo confirms that the company evaluates all growth opportunities ona regular basis, Brion Tingler said in an emailed statement. We continue to focus ondriving organic growth while at the same time, as we have stated many times in the past, wewill consider M&A when it is aligned with our Protect and Attack strategy.Its easy to see why Yang is interested in a foreign brand such as BlackBerry. Unlike manyChinese companies just beginning to move beyond their home market, Lenovo is already aglobal player. As the dominant brand in China, it is also growing fast in Europe, Africa, andthe Middle East. In the fourth quarter, Lenovo was the only one of the top five PC companiesto enjoy any growth in those markets,( HP Retakes Top Spot From Lenovo as PC Shipments Decline according to data fromGartner.)Lenovo has consistently shown its not afraid of buying down-on-their-luck Western brandsto expand its reach. Thats the tactic the company followed for its computer business in 2005,when it bought the PC division of IBM (IBM). The rough integration that followedprecipitated Yang taking over in 2009 from former Dell (DELL) dell inc (DELL:NASDAQGS) executive William Amelio. New CEO of Lenovo Group Yang Yuanqing and formerCEO William J. Amelio. Eventually, though, the deal helped Lenovo join the top ranks ofglobal computer makers: The company is neck-and-neck with Hewlett Packard (HPQ) dellinc (DELL:NASDAQ GS) for bragging rights as the worlds largest PC company, havingpassed HP in the third quarter before the American company regained its lead. 37. 37 | P a g eYang and others at Lenovo know they cant afford to stick with computers. Lenovo isgrowingsales increased 8.2 percent in the fourth quarterbut the overall pie is shrinkingfast: PC shipments fell almost 5 percent in the quarter. Thats why company executives talkabout a PC+ era for the company. Theyve had success in China, where Lenovo has inthree years vaulted from nowhere to No. 2 in the smartphone market, ahead of Apple (AAPL)and behind only Samsung Electronics (005930).Repeating that success outside China will be challenging. Abroad, Lenovo wont enjoy thesame consumer brand strength or unmatched distribution network. BlackBerry remains afavorite among business customers, and it could be just what Lenovo needs to overcome itsglobal weaknesses and compete against Apple and Samsung. Buying a tired brand withstrong ties to the corporate world worked once for Lenovo. Yang might be looking for arepeat.Analysis and DiscussionMarket Definition/Description.The market is defined by the following type of products:Notebook PCs are those with a screen size that is more than 11 inches in various form factorsand configurations. Mobile thin-client terminals, notebooks, media tablets, mobile phonesand smart phones are not included in this Magic Quadrant.Desktop PCs include desk-based systems of various form factors and configurations.However, we do not include thin-client terminals or technical workstations in this MagicQuadrant. Although we are not evaluating thin-client offerings, we do broadly consider howeach vendor approaches alternative delivery models.For more information about notebook and desktop definitions, see "Dataquest Guide:Computing Hardware Definitions, Worldwide, 2009."The main customers in this market fall into three private-sector segments:Enterprises that operate globallyEnterprises that operate regionally but have some global presence 38. 38 | P a g e Midmarket or large enterprises that operate in one or more countries and have more than1,000 employeesVendor Strengths and CautionsAcerAlthough Acer is a global powerhouse in consumer PCs, it has not been able to translate thatsuccess into the global enterprise market. In selected areas (Europe and Africa), the companyhas established good corporate capabilities; however, the level of commitment, products anddirection are not consistent across all geographies. Customers requiring high levels of serviceand support for PCs should expect to rely on local channel partners, especially if they areoperating in multiple countries. Users may need to make separate deals for each region, andexecution could be inconsistent as a result.StrengthsAcer has good market visibility.It provides good regional offerings in education and for small or midsize businesses that aresupported by a good channel partner network.Acer has some global product offerings, with a highly efficient supply chain and a strongmarket presence across many regions, but targeted mostly to transactional business.Figure1. Quadrant forGlobal EnterpriseDesktops and NotebooksSource: Gartner (October 2012) 39. 39 | P a g eCautionsAcers large-enterprise-level product offerings are weak. Commercial systems are targeted attransactional (small business and retail) markets.It lacks global service and support capabilities and has limited global account management.Acer has limited, but improving, capabilities for delivering standardized products acrossmultiple regions.Its image and platform stability programs are limited.AppleAn increasing number of companies are interested in procuring Macs for all or part of theirglobal fleets. Apple has intentionally chosen to focus its business toward consumers. It doesnot aggressively develop programs and services for global enterprise customers. Fororganizations that have a strong dependence on Windows applications, the decision to adoptApple Macs can be a more complex undertaking, because Macs are not directlyinterchangeable with PCs from other vendors in the market. Organizations that have multiple-country operations will likely need to make separate arrangements in each region, with localpartners making global deployments more complex.StrengthsApple exhibits excellent product design and innovation.It has ongoing financial and organizational stability.Apple shows strength in selected vertical sectors in which high-end media creation tools arenecessary.Cautions 40. 40 | P a g eApple lacks consistent global service and support capability.Its enterprise-focused global sales organization and account management capability arelimited.It lacks an enterprise-focused product offering.DellDell is a strong corporate PC supplier with good global coverage and capabilities. Althoughthe company provides good products and has bolstered its worldwide service capabilities, itsexecution continues to be inconsistent, with some customers complaining of late deliveriesand inconsistent support levels. As the company positions itself beyond its PC roots, we see itbeing less competitive on PC pricing, but broadening the range of products and services it canprovide. This includes the recent addition of thin clients through the purchase of WyseTechnology. Dell is a strong viable supplier for all business PC requirements, and for globaland large-enterprise organizations.StrengthsDell offers good-quality products, programs and services targeted to global enterprisecustomers in mature markets.It has strong levels of account management for global enterprise customers.Its broad product models cover a variety of form factors, including thin clients.The company provides generally good global coverage.CautionsDell experiences execution issues for some large global accounts at times, which results inpoorer responsiveness and less-competitive pricing.Midsize enterprises that do not achieve "global account status" with Dell may experienceinconsistent service and support levels. 41. 41 | P a g eAlthough Dell has good global coverage, at times, customers experience uneven service andsupport levels in some regions, especially in emerging markets.Although channel partners are playing a more important role in enterprise business comparedwith the past, Dells overall channel to market is still limited.FujitsuFujitsu has improved its ability to execute on a global basis and provides a good option forcorporate purchasing for many organizations. Although its U.S. operations are still relativelyweaker, it has added desktops and bolstered its North American capabilities. Fujitsu is also astrong supplier of pen tablet PCs, an important segment with Windows 8.StrengthsFujitsu offers a range of high-quality, enterprise-class products with global availability,including desktops.With Fujitsus strong line of pen-tablet products designed for vertical markets, it is well-positioned for Windows 8 enterprise tablet implementations.Its global pricing, account management and service offerings are improving.Fujitsu has a good managed desktop service portfolio across Europe.CautionsFujitsus global presence and investments are focused mostly on Europe, the Middle East,Africa and Japan.Market share erosion has stabilized, but its market share position raises questions aboutongoing investment in global programs and services. 42. 42 | P a g eIts emphasis on global and large accounts management capabilities has been inconsistent,although improvements have been noted.HPHP remains the strongest overall PC provider, with a strong global presence and portfolio ofservices and products. It is a strong viable supplier for global enterprise customers, regardlessof business size. The disruptive events of 2011 are no longer a concern, and HP customershave no specific reasons to be concerned about the current organization. We see positivesigns that HP is refocusing on its PC efforts as it approaches 2013. Although we have seensome signs of minor weakening of market share and less-competitive pricing, overall, wehave no concerns about HP as an enterprise PC provider.StrengthsHP has a good understanding of the market and good execution of market strategy.It has good account management for its largest global enterprise customers.HP has the broadest product portfolio among its competitors, covering all form factors.Strong channel ties give HP greater choice for fulfillment, which is an advantage especially among midsize organizations and in some emerging economies.HP provides best-in-class response to industry supply issues.CautionsHPs overlapping PC brands can be confusing and may get more so in an era ofconsumerization. 43. 43 | P a g eGlobal implementations, especially those involving coordination across multiple countries,have experienced increasing issues during the past year. However, sales force restructuringlooks well-designed to respond to recent problems regarding global accounts.LenovoLenovo has consistently improved its position both in global capabilities and in marketunderstanding during the past several years, and its market share growth has reflected theseimprovements. It continues to provide well-designed products at very competitive prices.Lenovo is becoming a stronger option for organizations requiring global PC deployments,and is a strong viable supplier for all business notebook and desktop requirements.StrengthsLenovos product design is strong, with continued investment in development capabilities.Its ThinkPad brand is established, well-known and high quality.Lenovo has made continuous improvements in its sales strategy, channel and supply chain,combined with an aggressive competitive approach to the corporate market.It has increased its focus on difficult geographies, such as African countries.Lenovo improved its service offerings by moving coordination and control in-house.CautionsExpanding product brands is creating some overlap, which can be confusing for midsizeorganizations.Current aggressive pricing from Lenovo may not carry forward in future years.The differentiation provided by Lenovos ThinkVantage software tools is eroding. Alternativeofferings from Microsoft and third parties are improving and are often free, reducing thevalue of Lenovos unique tools. 44. 44 | P a g eOf the larger players, Lenovos efforts to expand beyond the PC to provide broader servicesand data center capabilities are not as well-developed and may require customers to deal withmultiple vendors.PanasonicPanasonic is a provider of ruggedized and semiruggedized notebook computers. AlthoughPanasonic is not positioned to fulfill all of an organizations global PC requirements, withinits target market, it provides a solid level of support and capabilities.StrengthsPanasonic has excellent engineering capabilities.It has a strong understanding of selected vertical markets.Panasonic is a viable supplier of ruggedized and semi ruggedized products, with a longhistory of leadership in that niche market.It has a strong understanding of mobile broadband and other wireless integration.Panasonic has invested in global operation expansion; however, the coverage is not yet to thelevel of leading vendors global coverage.CautionsA lack of desktop offerings makes it inappropriate if a sole PC vendor is desired.Panasonic lacks a consistent global presence. Global service and support depend on partners.It has limited experience with mainstream users outside of vertical solutions.Vendors Added or Dropped 45. 45 | P a g eWe review and adjust our inclusion criteria for Magic Quadrants and MarketScopes asmarkets change. As a result of these adjustments, the mix of vendors in any Magic Quadrantor Market Scope may change over time. A vendor appearing in a Magic Quadrant or MarketScope one year and not the next does not necessarily indicate that we have changed ouropinion of that vendor. This may be a reflection of a change in the market and, therefore,changed evaluation criteria, or a change of focus by a vendor.AddedNo vendors have been added.DroppedNo vendors have been dropped.inclusion and Exclusion CriteriaThis Magic Quadrant focuses on suppliers that work directly or indirectly with globalenterprise buyers. The set of vendor inclusion criteria covers up to 90% of the total desktopand notebook market for enterprises. To appear in this Magic Quadrant, vendors must satisfythe following criteria:Offer desktops and notebooks for professional usersOperate business globallyHold more than 4% of the market share in enterprise markets in one of the major regionsEvaluation CriteriaAbility to ExecuteThis axis evaluates PC vendors on the quality and efficiency of the processes, systems,methods or procedures that enable their performance to be competitive, efficient andeffective, and to positively impact revenue, retention and reputation. Ultimately, globalenterprise desktop and notebook providers are judged on their ability and success incapitalizing on their visions. 46. 46 | P a g eAbility to Execute consists of the following criteria:Product availability product portfolio and rangeOverall viability (business unit, financial, strategy, organization) product quality andavailability, service and support, as well as the vendors financial strengthSales execution/pricing the availability of special sales teamsMarketing execution the vendors market share in the global enterprise marketMarket responsiveness and track record ability to respond to changing market conditionsto achieve competitive successCustomer experience the vendors ability to provide support and servicesOperations factors that impact the vendors ability to meet commitmentsEnvironmental performance and capabilities, including supply chain and productsCompleteness of VisionThis axis evaluates desktop and notebook vendors on their ability to convincingly articulatelogical statements about current and future market direction, innovation, customer needs andcompetitive forces, and how well they map to the Gartner position. Ultimately, globalenterprise desktop and notebook providers are rated on their understanding of how marketforces can be exploited to create opportunities for the provider. 47. 47 | P a g eCompleteness of Vision consists of the following criteria:Market understanding mechanisms for customer feedbackMarketing strategy the vendors ability to provide various professional servicesSales strategy the vendors capability to work with customers through its sales force andsales tools.Offering (product) strategy the vendors strength in R&D and the capability of productdesign, and the vendors ability to offer image stabilityVertical/industry strategy the capability of providing vertical-specific servicesInnovation product innovation, an approach to providing alternative application deliverymodels and green IT solutionsGeographic strategy the capability of providing products and services globallyEnvironmental programs, including sustainability goals and processes.Quadrant DescriptionsLeadersPC vendors in the Leaders quadrant register the highest scores on Ability to Execute andCompleteness of Vision. These vendors have wider geographic coverage, comprehensive 48. 48 | P a g esales organizations, financial stability, comprehensive customer support, broader productportfolios, longer product availability and larger market presence, compared with vendors inother quadrants.ChallengersChallengers have high scores in Ability to Execute, but their Completeness of Vision scoresare not as high as those of the Leaders. Challengers often have a good market presence andfinancial stability, but they may have less geographic coverage, or they lack an innovativeview of the products, compared with the Leaders. There are no Challengers in this MagicQuadrant.VisionariesVisionaries have high scores in Completeness of Vision; however, their Ability to Executescores are not as high as the scores of vendors in the Leaders quadrant. Their market presencemay be less than that of the Leaders, and their financial stability may not be as solid. Also,their sales organizations and customer support mechanisms may not be as comprehensive asthose of the Leaders.Niche PlayersVendors in the Niche Players quadrant do not have high scores on both axes. They often havea low market share, and their market coverage of different regions is limited. Many of thesevendors have a strong consumer PC business. It is important to note that a PC vendorsposition in this quadrant is not a value judgment on suitability, because that vendor mayspecialize in particular areas in a vertical-market segment or have product portfolios in whichLeaders may not have much focus.ContextThis Magic Quadrant is designed to assist global enterprise customers in selecting vendorsthat are able to supply a large number of PCs in multiple regions. The results of this analysiscombine evaluations of the vendor attributes that matter most to global enterprise customerswhen selecting PC suppliers. The attributes we evaluated include product portfolio, global 49. 49 | P a g ecapability, financial health, account management, service and support. This Magic Quadrantcovers both global enterprise notebook and desktop vendors. In cases where a vendor doesnot provide desktop systems, we have called it out in the cautions and factored it into thevendors position on the Magic Quadrant.Each vendors position is accurate for the factors included in this analysis. Clients shouldassess their priorities and apply these while performing due diligence as part of the vendorevaluation process. It is not uncommon for clients with unique requirements to find that alesser-known vendor is best-suited to meet their needs.The Magic Quadrant for Global Enterprise Desktops and Notebooks will be updated eachyear to reflect changes in market dynamics. We evaluate a vendors position based on:The quantitative parameters we obtain from vendors through a questionnaire responseA qualitative analysis based on vendor interviewsSubjective evaluations based on extensive feedback from Gartner clients and scores given byeach of Gartners user-facing client computing analysts against a range of criteriaMarket OverviewGlobal organizations are not necessarily very large enterprises with tens of thousands ofusers, and yet they have specific requirements that pose unique challenges to PC suppliers.For global enterprise customers, price is an important consideration, but not usually theprimary purchase criterion. Instead, the purchase decision process considers various factors,including the ability to provide appropriate services and to support global deployments.Working with desktop and notebook vendors that can meet these requirements helps reducethe total cost of PC ownership.The PC market is a mature market, and we continue to see signs of potential consolidation.Attributes that we capture in this Magic Quadrant include the commitment to the enterprisemarket by established professional PC vendors and the likelihood that consumer players willexpand on their global enterprise capability. Because most corporate customers have movedto a single-supplier strategy for purchasing their PCs, we put a high value on the breadth ofproducts that are supported by a strong channel network. Gartner regards global presence as a 50. 50 | P a g esignificant criterion for evaluating potential PC suppliers. The Leaders in this MagicQuadrant are all international vendors that can provide consistent products and servicesacross multiple regions. Some of the players are global, but without enterprise accountmanagement capabilities and/or explicit stable platform programs. Although smaller vendorscan also play effectively in the enterprise PC market, lack of global capabilities for deliveryand/or support would put them into a Niche Players or Challengers position. Some smallerplayers specialize in specific vertical markets.During late 2011 and 2012, the corporate PC market has been challenging to many of theplayers. While the PC replacement cycle has continued to prop up overall corporate unitsales, competition in the PC market is fierce, and many PC makers have been struggling tomaintain the discount levels offered in previous years. As in 2011, we continue to seeinstances where the attributes that qualify a PC as a business-class model which includeelements such as long image stability, long product life cycles and a three-year standardwarranty are eroded and shortened by vendors to maintain margins. At the same time, theeffects of supply disruptions caused by natural disasters (for example, Japan earthquakes andThailand flooding) have created serious challenges in product delivery and exposed thedifferences in vendor supply chains.Looking forward, the PC market is undergoing significant upheaval as traditional enterprisevendors compete with consumer offerings and new classes of device for the IT budget. Newplayers are jockeying for position in the enterprise environment, but few have madesignificant inroads as of yet. We do include several players whose main focus is on theconsumer PC market, and we are constantly monitoring others to see whether they meet ourinclusion criteria. Moving into 2013, the rising interest in mobile devices and tablets willprovide opportunities for PC makers to innovate with new form factors, but also will createrisks for those who cant provide the right balance of quality, price and differentiation.Although we havent considered tablets as part of this years Magic Quadrant, we haveadjusted the weighting around innovation and the overall approach to the mobile market toreflect the growing importance of this part of the market.The relative positions of the vendors have remained mostly stable this year, as you wouldexpect from a mature market:Lenovo has moved up with respect to its Ability to Execute, reflecting its surging marketposition. 51. 51 | P a g eFujitsu has seen some small improvements in its Completeness of Vision and Ability toExecute, mostly because of improvements in its global capabilities.Dell has seen some improvement on Completeness of Vision but has seen its Ability toExecute eroded throughout the year by some inconsistent customer support and less-competitive pricing.HPs position has remained relatively unchanged from last year, as improvements inorganizational stability have been balanced by issues with global account management.Some minor movement of other vendor positions has occurred as a result of adjustments tothe weighting of various metrics (as noted above) and does not necessarily reflect changes inthe vendors approach to the market or capabilities.RecommendationsThe following recommendations have been made to address their key issues that areimpeding their profitability: increase advertising and sponsorship, maintain a strong presencein China, pursue outside markets and consider future acquisitions. Implementation of therecommendations will give Lenovo the strength it needs to compete with their competitors.Increase AdvertisingLenovo has already taken several steps to increase its brand awareness outside of China, suchas sponsoring the Olympics, an event that ensures advertisers that their message will reach aglobal audience. Unfortunately for Lenovo, that is not enough, as many people still have noteven heard of them.Lenovo hired former Apple and HP executive David Roman earlier this year. Mr. Romanwas responsible for the famous HP The computer is personal again advertising campaign.Lenovo should use this man who has so much experience to their advantage. HPsadvertisements featured well-known celebrities using HP computers in stylized televisioncommercials and magazines. Lenovo should put Mr. Roman in charge of a fresh advertisingcampaign that should be distributed to their most promising markets outside of China. At 52. 52 | P a g ethe moment Lenovo is making more than twice as much revenue in mature markets likeAmerica and European countries, than in their emerging market segment. People in maturemarkets are more likely to have access to televisions and purchase magazines than those wholive in less developed areas, and Lenovos ads have a greater chance of being seen there. Forthis reason Lenovos forecasted advertising budget has been increased in order to pursue thisnew strategy. This is reflected in the selling and distribution expenses section of the incomestatement. It may take some time before the full impact of these ads are realized and benefitLenovos net income. The important aspect of this advertising campaign is to get Lenovosname to reach a wider audience, not to increase profits immediately.Increase SponsorshipIn order to increase brand awareness and capture the global market, Lenovo should form apartnership with ESPN. ESPN is known as the worldwide leader in sports entertainment.They will be able to provide Lenovo with the opportunity to increase brand awareness in theUnited States as well as in other areas of the world. ESPN televises 65 sports in 16 languagesin more than 200 countries (ESPN, 2010). They will be able to increase Lenovos marketshare globally with an emphasis on the values their company possesses.Lenovo has a reputation for sponsoring sports. They sponsored the Winter Olympics in 2006,Summer Olympics in 2008 and they continue to sponsor the Vodaphone McLaren FormulaOne Race team. Forming a partnership with ESPN will only enhance their association withsports and they will reach a much larger audience. 53. 53 | P a g eLenovo will be able to provide ESPN with the technological equipment they need to performeveryday business activities including computers, servers, software updates, and even websiteassistance. In return, ESPN anchors will use Lenovo laptops live on Sports Center whenbroadcasting. ESPN will benefit from being provided with up-to-date technology and Lenovowill benefit from ESPN by increasing their brand image all across the nation. ESPN couldalso have a sports segment, featuring New World Sports, showcasing sports from aroundthe world and could be brought to you by Lenovo. This could increase international sportsexposure along with Lenovo computers to ESPN viewers.Not only would this partnership open up doors for Lenovo to expand into the United Statesand other countries, but this will also benefit ESPN in becoming more popular in China. Inorder to carry out this partnership Lenovos sponsorship expense will increase, which is alsoreflected in the selling and distribution expense in the forecasted income statement (Refer toAppendix E). 54. 54 | P a g eStrong Presence in ChinaLenovo is currently the number one PC manufacturer in China, and their growth rate is about1200 basis points higher than the Chinese industry average. They should carefully watchtheir two main competitors, Dell and HP, on their home front and make sure they stay ahead.Lenovo currently owns a 28 percent market share in China, which is about three times morethan Dell and HP which hold the number two and three positions respectively. These twocompanies will most assuredly try to increase their own brand awareness to Chineseconsumers to become more of a household name and increase their sales. Lenovo should tryto diffuse their efforts as much as possible through counter advertising (refer to advertisingrecommendation page for markets outside of China). Their ads should emphasize that theyare a Chinese company and garner some national pride among their Chinese customers. Itshould also include references to their superior customer service awards so that they becomeestablished as a reliable, helpful company that keeps their customers needs in mind.This year Lenovo was among the top 10 winners of the fifth annual rankings for BestCustomer Service in China, an event that is widely considered to be the benchmark forevaluating customer service in the country. They won awards for providing exemplarycustomer service practices and also for best service innovation. Liu Chuanzhi, chairman ofLenovo Group, also won a prize for outstanding leadership in customer service (China Daily,2010). It is important for Lenovo to maintain this prestigious position as it will helpdifferentiate itself from its competitors and build brand loyalty for its customers. If theycontinue to pursue a customer-driven marketing strategy, then their reputation will grow,more consumers will find them attractive, and they will keep their current customers comingback time and time again, producing high customer equity. A good reputation is a valuableintangible asset that breeds word of mouth advertising that rakes in more potential customers. 55. 55 | P a g eIncrease R&DIn an effort to better compete with competitors, we recommend that Lenovo increase theirresearch and development costs to 3 percent of their annual revenues. In the past 3 years,Lenovo has allocated between 1.3 and 1.5 percent of revenue. This boost in R&D will ideallyopen up the grounds for better, more innovative products that will out-perform competitors.Currently, Lenovo is among the lowest of HP, Dell, and Apple in terms of R&D, mostlybecause of the sheer size of their competitors. An increase of about 1.5 percent will be adrastic change. Over the next five years, Lenovo will be spending over $1 billion per year onR&D. In addition, we are confident that the increase in R&D will allow Lenovo to controlmore of their pricing due to the differentiation of their innovative, superior product line. Thiswill increase gross margin, allowing Lenovo to reach much higher profits, than with their oldallotment of R&D. In 2015, Lenovo could see a net profit of $631 million, $180 millionlarger than the forecasted net income for 2015 without the increase of R&D. As a result of theincrease, we expect Lenovo to see a constant 5 percent additional revenue growth per year forthe next five years. However, holding all else equal, Lenovo could experience a slight drop innet income in 2011, but the other recommendations will balance the loss until drasticinnovative measures can take place. 56. 56 | P a g eAcquisitions & MergersMr. Yang Yuanqing, the CEO of Lenovo, hasnt identified any suitable acquisition targetsrecently. There currently are no opportunities for mergers and acquisitions, he said.Acquisitions are an important means of expansion, but buying opportunities could surfacewhen market prices are more rational, he said (Chao, 2009). Now may not be Lenovostime for acquisitions, but the company should keep its eyes open towards the near future.Even though Lenovo is the fourth largest PC manufacturer in the world, there is a large gapbetween it and its larger competitors in terms of revenues, assets, and size in general (seegraphs on page 31).Should any smaller company come out with a cutting edge product or technology, Lenovoshould consider buying the company and adding the new innovation to Lenovos repertoire.The same goes for any other relevant company that would be willing to sell itself for areasonable price. If Lenovo purchases these smaller companies wisely, then they willbecome one step closer in


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