Consumer Electronics

As Lenovo Falters, HP (HPQ) And Dell (DELL) Sweat

Share of large China-based PC company Lenovo were downgraded overnight. According to Reuters, "JP Morgan downgraded Lenovo to neutral from overweight due to a near-term slowdown in revenue growth from weak China demand and a slower ramp-up of the U.S. consumer business."

PcThat is the same China the US PC companies Dell (DELL) and HP (HPQ) have been counting on for much of their growth over the next several years.

If the sales of computers is dropping off in China, they are likely to be diving elsewhere. The penetration of PC ownership is much lower on the mainland than it is in the US or Europe. It should be the model of long-term demand. There have been signs of the Chinese economy weakening for the last few months. Inflation is running about 10%, robbing the local citizens of their discretionary buying power. GDP growth is slowing, which means job security and wage increases are at some level of risk.

The PC is already under siege in the American market because of the astonishing success of the Apple (AAPL) Mac. In the most recent quarter, Steve Jobs sold 2.5 million machines, up 41% from the same quarter a year ago.

It has been some time since selling PCs in the US was viewed as a major growth business. Asia became the promised land. Its vista seemed limitless.

Now that computer sales are faltering in the East, Dell and HP have no other place to turn.

Douglas A. McIntyre

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