Lenovo, the world’s second largest PC maker, is planning to revamp its business strategy and refocus on its server and storage business over the next three years.
The PC slump has been hurting Lenovo, Dell and Hewlett Packard for several quarters and all traditional PC markers are now trying to reinvent themselves.
Dell wants to go private, HP is waiting for inkjet printers to make a comeback, while Lenovo seems keen focus on everything other than PCs.
Although its latest announcement indicates that Lenovo will make a serious enterprise server and storage push, it should be noted that the company is also betting big on smartphones and tablets. However, we don’t get to see that many of them in Europe, but Lenovo’s mobile gear is doing incredibly well in parts of Asia. In fact, Lenovo’s smartphone business accounts for about 20 per cent of the company’s revenue in mainland China, reports China Daily.
“We are looking for future profit generators, and the enterprise-level server and storage markets will surely fill that need,” said Chen Xudong, senior vice-president and general manager of Lenovo China. However, Chen stopped short of outlining Lenovo’s expectations for its server and storage gear.
The storage strategy seems off to a good start. On Tuesday Lenovo and EMC released their first co-branded server and storage products. The two outfits formed a joint venture last year to shift server and storage gear. It is hoped that the EMC alliance will help Lenovo fend off challenges from ZTE and Huawei in the Chinese market.
Acer is apparently planning to revamp its product line in an effort to revive sales and growth momentum.
Last week Acer announced that it will increase R&D spending to between 1.2 and 1.5 percent of annual sales this year. Acer apparently wants to invest more in order to stay competitive in the tablet market, while at the same time improving its notebook line. Acer hopes to sell between 5 and 10 million tablets this year.
Analysts, however, see trouble ahead. Deutsche Bank analyst Ivy Lee said Acer might encounter new challenges that might cause its sales to remain flat, reports Taipei Times. Windows 8 is apparently the biggest risk, since there is still not enough consumer feedback on Windows 8 tablets and notebooks.
Acer recently killed off a couple of its value brands, after it experienced a huge inventory loss in late 2011. Like other leading PC makers, Acer is experiencing a lot of margin erosion and falling market share.
Citigroup Global Markets analyst Kevin Chang believes Acer will continue to struggle in the near future. In a recent note he argued that Acer’s current strategy is simply not working and that it has to be more aggressive on pricing.
As the PC slump drags on, Lenovo, Asustek, Dell and HP will try to hold their ground and fierce price competition is to be expected. As for tablets, Asus and Lenovo have done a bit better than other major PC players. Lenovo did particularly well in China in the last two quarters, while Asus has managed to make quite a name for itself in the Android tablet space with the Transformer series. It also builds Google’s Nexus 7 tablet.
A survey of 10,000 US consumers has pointed to Apple and HP taking the top end of the satisfaction ratings for the computing segment in a Temkin Experience study. At the bottom of the rankings were Sony and Lenovo.
The survey looked at three areas of customer satisfaction, that is, functionality, accessibility, and the emotional reaction to the use of their product across different industries, including with computing.
Acer, Apple, Compaq, Dell, eMachines, Gateway, HP, Lenovo, Sony, and Toshiba were included. According to the survey, personal computers have been making steady gains in customer satisfaction – the average experience rating has increased to 60 percent for this year, up six percent from 54 percent in 2011.
Apple’s enormous popularity in the States put it on top for computing, reaching 134th place of any brand across every industry at 64 percent customer satisfaction. That is slightly below its 2012 rating at one percent less, however, it pipped other computer makers to the spot with top feedback for the accessibility and emotional categories. HP was second, beating Apple in functionality, and scoring 62 percent overall.
Of the PC brands, Dell scored the biggest improvement from 2012 with an increase in six percentage points. Sony and Lenovo however were the lowest ranked PC brands, both scoring 54 percent – not dismal, but showing significant declines for the segment. Sony scored poorly on functionality and accessibility, while Lenovo users were just not that attached to their machines with a low rating for the emotional category. Overall, ratings for PCs were 13th out of the 19 included industries.
The full ratings can be found at Temkin’s website, here.
The stagnating and eventually declining demand for the traditional PC desktop has had an inevitable knock-on effect in the monitor industry, with the latest report from analyst house IDC lowering its Q4 2012 estimate from 37.9 million to 36.3 million units.
IDC also lowered total shipment forecasts for 2013 from 142.8 million to 140.1 million units, or a six percent yearly decline. The grim forecast will not be getting any better, with expectations that by 2017 shipments will drop to 122.2 million units.
As with the desktop itself, the booming mobile computing trend is essentially killing off demand for the monitor. IDC pointed to “consumer confusion” about Windows 8 paired with the wider economic situation as pretty solid reasons why people aren’t buying, which means decreased demand going into 2013.
Average selling prices, too, are likely to decline by as much as 1.5 percent per year going through to 2017. Those that are interested in buying will be glad to hear that overcrowded competition will mean companies lowering prices as they try to win custom. Price per inch could decline from $8.35 in 2012 to $7.46 in 2017, which should continue because of what IDC calls the natural migration of users to larger screen sizes. In 2012, the mean screen size was 20.4″, but this should grow to 21.4″ by 2017.
Vendors can boost their margins by looking towards innovation and building consumer value with lower cost monitors. IDC cites Samsung’s PLS technology as an attractive way to seduce custom.
IDC’s senior research analyst, Linn Huang, said that failure to drive innovation in the market will “likely result in the long-term tradeoff of profit margin for volume retention”.
Of the vendors still in the game, Samsung is ahead with 15 percent of the market share. Dell followed with 12.7 percent, and HP, Lenovo, and LG had 10.8 percent, 9.7 percent and 9.6 percent, respectively.
One of the few successful PC makers this year, Lenovo has said that it has nothing to fear from Dell going private.
For those who came in late, Michael Dell along with a consortium of chums which include Microsoft, bought up the with his name on it to make the hardware maker private.
The move will mean that Dell will not have to answer to any nasty smelly shareholders and Microsoft will be assured that it has a hardware base for its Windows 8 plans.
In a statement, Lenovo said that Dell’s actions will make no difference to its outlook. In fact the wording, which failed to mention Dell by name, seemed to imply that there had been calls for it to do something similar.
If Lenovo had been thinking of doing something similar that would have been surprising, nevertheless, the company seemed to be answering an unasked question “what will it do now?”.
In a press release Lenovo said it did not have to do anything, thank-you very much. Its strategy was clear, its financial position is healthy and its business is very strong.
Lenovo was “focused on products, customers and overall execution rather than distracting financial manoeuvres and major strategic shifts”.
Lenovo has enjoyed growth in sales and profits thanks to its strength in China and emerging markets so it never really need to change anything it was doing.
Since buying IBM’s PC business in 2005, Lenovo has grown fast and overtaken Dell in the PC market. It is the world’s second-largest PC vendor, is now only slightly behind market leader HP.
So Lenovo’s response to Dell’s sale is that “well we are not going to do anything like that” which is fair enough. We didn’t think it would.
Lenovo has bucked the trend with a stellar quarter, which saw the outfit’s profit and market share soar.
Lenovo reported its earnings on Wednesday and its net profit in the October – December fiscal quarter was $204.9 million, up by a third from a year earlier. Analysts had expected Lenovo to post $178 million net profit, but the outfit outperformed even the most optimistic forecasts. In fact, Lenovo exceeded its previous record of $172, posted back in 2007, before the credit crunch and PC slump.
The company is still trailing Hewlett Packard in terms of global PC market share, but according to IDC, it is narrowing the gap. What’s more, Lenovo is diversifying beyond the PC market and its smartphones and tablets are making their presence felt in China. The same can’t be said of HP, which apparently still thinks it can grow its business by peddling toners and overpriced printer ink.
Although Lenovo phones are somewhat of an oddity in western markets, Lenovo’s mobile business saw its revenues jump 77 percent in the Chinese market, almost hitting the $1 billion mark. So although western consumers don’t see them, Lenovo phones seem to be doing rather well. The company’s mobile internet and digital home business accounted for about one tenth of revenues during quarter and Lenovo claims its China smartphone business reached profitability for the first time.
Lenovo’s core business is doing fine and its focus on mobile seems to be paying off, at least in China. Lenovo’s Android tablets aren’t big sellers in the west, but they aren’t lemons, either. What’s more, Lenovo is starting to offer an increasing number of high-end ThinkPad tablets on top of its bland Android offerings. It is also in a good position to capitalize on Windows 8 tablets and hybrids. Although the Android tablet market will probably remain dominated by Asus and Samsung, Lenovo might carve out a high-margin niche in Windows 8, if it plays its cards right.
Acer is taking a beating on the back of a slow PC market and fears that it expanded too much, too quickly.
The Taiwanese outfit is the fourth largest PC maker in the world, and it peaked in 2010, when it briefly ranked second. However, things have gone downhill and on Wednesday Acer announced it expects to post a full-year net loss for the second consecutive year. It is also looking at a $120.1 million write-down on several value brands under its umbrella.
During the PC boom in the late nineties and early 2000s, Acer went on a massive shopping spree and picked up a number of value brands, including Packard Bell, Gateway, eMachines and E-Ten. The write down on said brands dragged Acer to a net loss and the company plans to discontinue the eMachines brand altogether.
Other PC makers are facing similar challenges, as they struggle to reinvent themselves and gain a toehold in emerging sectors, like smartphones and tablets. Acer has a small presence in both sectors.
The company’s phone business is practically negligible and its attempt to expand its presence in China in 2012, with smartphones based on Aliyun, a heavily customized Android-based OS, was promptly ditched after Google threatened to cancel the company’s Android license. Acer had a bit more luck with Android tablets and it is moving into the Windows 8 tablet space as well, but its efforts have been overshadowed by the likes of Asus and Samsung.
Even as it struggles to remain competitive in the PC market, burdened by underperforming value brands, Acer prospects in the heavily contested smartphone and tablet markets look even bleaker.
Brokerage houses Nomura Holdings and UBS are anything but optimistic and UBS cut its target price and maintained the “sell” rating on Acer stock after the report. Nomura was somewhat kinder, but it also maintained its “reduce” rating on Acer, Taipei Times reports.
“Longer term, we think Acer still needs to face the reality of how to rebuild the brand positioning/image for Packard Bell and Gateway amid intense competition and slowing PC industry growth,” said Nomura analyst Eve Jung.