Doubts still remain as to whether Chinese computer giant Lenovo will be able to cut it in the real world, but its competitors seem to think so.
The company bought its way into third place in the global PC stakes in May last year when it bought the ailing PC unit of IBM for US$1.25 billion, in a move widely dismissed as an attempt to buy a brand rather than develop its own.
Now Dell, which is the world’s largest PC maker – ahead of Hewlett-Packard – is planning to mount an aggressive price war to pull its rival’s feet from under it even as Lenovo struggles to restructure its way out of the mess left behind by the woefully wasteful IBM.
Lenovo estimates it can save US$250 million a year by cutting around 1,000 employees and shifting offices. However, the restructuring will cost it around US$100 million, which it must pay for now.
But it seems to be doing the job better than analysts expected, booking a US$5 million profit in the second quarter, including US$19 million of its planned restructuring costs, after posting a loss in the first. Sales were up, as were gross profit margins, while revenues in the Americas topped US$1 billion for the first time, up 6% and accounting for 30% of total sales.
The immediate future will be interesting for the company. Nobody does price wars better than the Chinese, so Dell’s plans to take it on in this space are like a red rag to a bull. But price cuts do not a good brand strategy make, so watch for Lenovo to hold firm.
This is the new China, and Lenovo in many ways carries the flag for China’s strategy to develop truly global brands (cheap Haier beer fridges do not apply). It’s already dropped the IBM brand, silencing those critics who thought it would hide its Chinese-ness behind a global name, and it is now ready for the big time.
Who knows, maybe next year I will be posting this from a brand new Lenovo PC.
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