Consumer Electronics
Lenovo and NEC Talks: More PC Consolidation (DELL, HPQ, ACEIF, LNVGY, NIPNF, IBM)
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That the PC market is shrinking is no longer news. Mobile devices such as smartphones and tablets are cutting into PC desktop and laptop sales at a growing rate. What that means for PC makers is that they must either provide more value for the same price or they must wring more costs out of producing fewer machines or they must develop new markets.
Among PC makers, Dell Inc. (NASDAQ: DELL) has taken the pole position, committing $100 billion of investment in China through 2020. The world’s largest PC maker, Hewlett-Packard Co. (NYSE: HPQ) says it will resume investing in its China business, but gives no specifics. Taiwan’s Acer Inc. (OTC: ACEIF), the world’s third largest PC maker, has set a goal of being the world’s leading maker of notebook computers in 2011. The number four maker, China’s Lenovo Group (OTC: LNVGY), may also have a play in mind.
Japan’s Nikkei business daily is reporting that Lenovo is talking with Japan’s NEC Corp. (OTC: NIPNF) about an unspecified joint venture that could see Lenovo take a majority interest in NEC’s PC business, according to Reuters. Lenovo paid about $1.75 billion for the PC division of IBM Corp. (NYSE: IBM) in 2005.
Buying a controlling stake in NEC’s PC business would only increase Lenovo’s share of the global PC market by about 0.9%, but NEC is the market share leader in Japan, with 18% of domestic sales. Depending on the price Lenovo would have to pay, that might be a decent deal.
According to the latest IDC report on sales in Asia/Pacific (excluding Japan), Lenovo leads with a 22.3% market share in the fourth quarter of 2010, followed by H-P with 10.8%, and Dell and Acer each with 8.8%. The good news for Dell, however, is that year-over-year sales growth totaled 40%, whereas H-P lost -9% of its sales when compared to 2009. Worse for H-P was a -21% share fall-off in the fourth quarter.
But Dell is not catching up with Lenovo, which grew share from 18.2% in 2009 to 20.2% in 2010, a change of +32%. Dell’s 40% growth pushed its share from 8% in 2009 to 9.5% in 2010.
Part of a year is hardly enough time to gauge whether or not Dell’s investment in China will pay off. But it is probably safe to say that while Dell may unseat H-P as the number 2 PC maker in China, it has little chance of unseating Lenovo as number 1.
A joint venture between Lenovo and NEC won’t change any of that. What could change is Lenovo’s position in the global sales rankings, where it now holds 9.9% of the worldwide market, behind H-P (18.5%), Dell (12.5%), and Acer (12.3%).
Besides bragging rights, a move up the rankings puts the PC market leaders in a better position to survive the coming onslaught of mobile device sales. H-P’s leadership position is probably out of reach to Lenovo, but either Acer or Dell or both could be vulnerable.
Paul Ausick
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