Lenovo Profits Up 30% as HP and Dell Struggle

Lenovo continues to beat Hewlett-Packard Co. (NYSE: HPQ) and Dell Inc. (NASDAQ: DELL) at what used to be their own game. The China-based company has not only gained market share, it has posted strong profits. Lenovo made progress in sales in each of the four major regions around the world in its most recent quarter. Net income rose 30% in that quarter to $141 million. Both gross profit and operating margins improved. Management attributed the corporation’s success to attainment of a few simple goals: strong execution, an efficient business model and innovative products.

Lenovo really does not have products that are more innovative than those of any other company in the business. It has no popular tablet or ultra-light PC. It also has had no success in the smartphone market. Lenovo does have a large share of the Asian markets, but much of its growth came in other regions recently. It is safe to assume part of Lenovo’s advantage is that it is better run than HP or Dell — which would not be hard.

HP has been crippled by turnover at both the CEO and board levels. The big tech company was going to spin off its PC business, and then it was not. That sort of environment does not encourage people to strive to do their best. It probably only frightens them. HP’s shares have dropped 58% in the past five years.

At Dell, the problems are bad for another reason. Founder Michael Dell was pushed out as the firm’s CEO and took back the job. Since then, he has had SEC problems. The firm has had to restate earnings. Dell is not considered much of an operator among Wall St. investors. The company has tried to diversify into non-PC businesses with the most modest of successes. Dell’s stock is off 55% in the past five years.

The analysis of why Dell and HP failed, even though they were the market share leaders in the PC business in the United States and worldwide up until recently, will be left to people who have the perspective to look back on the industry a few years from now. But, one thing is clear today. Bad management and lack of product innovation, particularly in the face of massive changes in the computing industry, scuttled Dell and HP. Lenovo did not have to be particularly innovative to top them. It only had to have management that could execute a fairly simple business plan.

Douglas A. McIntyre