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Company is eyeing expansions into the server and storage markets, plus smartphone expansion, but remains PC loyal

Beijing, China-based Lenovo Group, Ltd. (HKG:0992) is intent on continuing its meteoric rise and ambitious plans to displace traditional personal computer OEMs like Hewlett-Packard Comp. (HPQ) atop the list in international computer shipments. Currently in second place in PC sales, Lenovo opened a $1B USD line in North Carolina.  And already #3 in Chinese smartphone sales, Lenovo is eyeing a U.S. smartphone push.

But its plans don't stop there.

I. IBM Server Division is on Lenovo's Radar

CEO Yang Yuanqing spoke to reporters in the southwestern city of Chengdu, China at the Fortune Global Forum, commenting, "Servers and storage is the business we want to expand and develop.  If there is an acquisition opportunity, we will take it."

Having already purchased International Business Machines, Inc.'s (IBM) personal computer business back in 2005, Lenovo is rumored to be considering jumping straight to the top of the server market, exploring a purchase of the veteran U.S. firm's server business.  

Yang Yuanqing
Lenovo CEO Yang Yuanqing [Image Source: Reuters]

IBM's server unit is currently vying with HP's for the top spot in global sales.  When it comes to a sale to Lenovo, though, price has reportedly been a stumbling block in the pair's discussions.  

IBM Servers
Lenovo is greedily eyeing IBM's server division. [Image Source: IBM]

Servers are a lucrative and coveted business.  Server sales have helped U.S. manufacturers like HP and Dell, Inc. (DELL).  Chipmaker Advanced Micro Devices, Inc. (AMD) recently spent $334M USD to acquire server-maker SeaMicro.  So far that deal has been working out well for AMD, who like its PC OEM counterparts is using its server unit to offset losses from other divisions.

II. Tough Challenges Ahead to Keep up With Exploding Smartphone Growth 

He also discussed the smartphone push, explaining that his company's plan is to first expand into other emerging markets (like Brazil or Mexico) then move on to the most profitable top markets, like the U.S. He comments, "We will be in developed markets in a year.  The gross margin for smartphones is better than PCs -- when you have scale, you will make money."

Lenovo will have to vie with domestic rival Huawei Technologies Comp. (SHE:002502), who has similar ambitions.  Huawei is still outselling Lenovo in the smartphone market moving 9.9 million smartphones in the Q1 2013, versus 7.9 million for Lenovo.  But Lenovo is growing faster -- its sales more than double from a mere 2.5 million units in Q1 2012, while Huawei's sales "merely" doubled from 5.1 million in Q1 2012 [source].

The gadgetmaker also faces a tough challenge from market giants Apple, Inc. (AAPL) and Samsung Electronics Comp., Ltd. (KSC:005930) who spent years carefully generating strong brand images in the U.S. and Europe.

Lenovo smartphone
Lenovo is eyeing a global smartphone push. [Image Source: Jason Mick/DailyTech]

Lenovo also bucked the general slump in the PC market, essentially holding steady at 11.7 million units.  Combined with the strong smartphone growth, Lenovo managed to increase its profit 90 percent on a year-to-year basis.

Mr. Yang says the key reason why his company is hanging on while other PC manufactuers drop off is his company's willingness to offer optimized hybrid form-factors like the Lenovo Yoga tablets-cum-laptops.  He comments, "The PC will not die.  [But] the future PC is not the past PC."

Source: WSJ

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PC will never die
By Khenglish on 6/9/2013 11:58:17 AM , Rating: 4
Everyone I know who owns a tablet or smartphone also owns a laptop and/or desktop. tablets and smartphones are not a competitive product with PCs, they are a supplement. Tablets and phones are for high mobility and quick use, but when you want to write a paper, do research, watch a movie, play a game, etc, yeah a tablet or smartphone can do it, but it will always be more productive and enjoyable to do so on a 4x larger screen with a full size keyboard and a mouse.

The main reason I think PC sales are declining is not due to tablets and phones, but more so with the slower rate of progress in hardware advancements in the past decade, allowing people to get by with older hardware than they used to. A 1996 computer compared to a 2000 computer was night and day. A 2009 compared to a 2013 is not.

RE: PC will never die
By vXv on 6/9/2013 12:40:42 PM , Rating: 2
Yeah people blindly compare sales numbers and conclude "everyone replaces PCs with smartphones" which is simply BS.

People don't buy new PCs / laptop that much anymore not because they use smartphones and tablets instead but because what they already have is considered "good enough" i.e they have no reason to replace it that often anymore.

RE: PC will never die
By DiscoWade on 6/9/2013 9:39:39 PM , Rating: 2
Another reason is Windows 8. I don't want to get into an argument about Windows 8 but it has contributed to the decline of PC sales. I met someone who ordered a Windows 7 laptop from HP and she told me there was a 2 week delay for Windows 7 laptops because of high demand. Whether you like Windows 8 or not is irrelevant or whether or not its reputation is justified or not is also irrelevant. People don't want it. But for HP to have a 2 week delay with Windows 7 models shows that people want Windows 7 computers.

(By the way, if I understand it correctly, the Windows 7 models do not have the secure boot option which is why they don't try to sell the same laptop for both Windows 8 and Windows 7.)

RE: PC will never die
By ShieTar on 6/11/2013 8:40:38 AM , Rating: 2
Sure, but People who actually have an opinion on Windows 8 are People who already own and use a PC. They are just holding back on replacing their existing PC, but they will very likely do it in the not-so-far future.

Indeed, I do believe that tablets have a stronger impact on PC sales as the perceived quality of Win8 does. Sure, nobody is replacing the PC with a tablet, but a lot of people with a restricted budget for electronic toys will consider to buy their first tablet instead of replacing the still-good-enough PC right now. This will normalize over the next few years, once most people own a good-enough tablet.

Unless some interesting stuff starts happening to the market, e.g. GPUs starting to wander into the screens and tablets getting Thunderbolt interfaces. Then all bets are off.

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