Lenovo's margins being squeezed
23 February 2007
[photopress:lenovo_china.jpg,full,alignright]According to a Technology Business Research (TBR) report several factors will make it difficult for Lenovo to remain profitable and stay on its positive growth trajectory. Analyst Martin Kariithi wrote: 'Given the competitive dynamics and aggressive attempts by top-tier vendors like Hewlett-Packard and Dell to increase market share in the region, TBR believes Lenovo's market share in China is close to reaching a saturation point. TBR expects the company's market share gains to taper off as Lenovo approaches the 39% market share level.' For the fourth quarter Lenovo's market share in China stood at 36.2%. In its report, TBR said Lenovo's China operations continue to face margin pressure. The company posted a 5.1% operating margin during fourth-quarter 2006 which is a decline from the same quarter the year previous. Martin Kariithi wrote: 'Lenovo attributed this operating margin decline to strong price competition, indicating that the company is relying on cutting prices to drive revenue and unit growth. We believe it will be very difficult for Lenovo to reverse the trend toward declining operating margins in China.' Bryan Ma, director of personal systems research at IDC Asia-Pacific, was more upbeat about Lenovo's prospects. He said, 'Lenovo is strengthening. And look at the distance between the No. 1 and No. 2 vendors — it's vast.' According to IDC, China's PC vendor rankings for the third quarter saw Lenovo at top position with a 36% market share. It was followed by Founder at 13%, Dell (9%), HP (8%) and Tong Fang (6%).
Source: Businessweek
