Lenovo Group Ltd (聯想), which breathed new life into IBM’s personal-computer business, bet that it could do the same with mobile phones and data centers. Now, it is beginning to look like that gamble is dragging the Chinese manufacturer in the wrong direction.
Shares in China’s biggest PC maker fell for a third straight day in Hong Kong trading after the company reported a surprise net loss on Friday. Analysts cut their price targets for the stock, with Macquarie Securities downgrading its rating to hold from a buy.
Lenovo chief executive officer Yang Yuanqing (楊元慶) likes to describe the smartphone and server segments, along with new online endeavors, as “rice in the field,” not yet ready to be harvested.
Yet, the two units are struggling and posted losses in the latest quarter, calling into question the strategy of whether any fresh growth can be extracted from markets that are rapidly becoming commoditized. Lenovo’s best bet is to invent new products and services, but that traditionally has not been the company’s strong point, China International Capital Co analyst Qian Kai said.
“Innovation is not in Lenovo’s DNA,” said Qian, the top-ranked analyst in Bloomberg’s Absolute Return Rankings of the 30 analysts who cover Lenovo. His price target for Lenovo is HK$3.2, or 27 percent below Monday’s close.
“It’s more of a trading company than a innovator,” Qian said.
Lenovo shares retreated as much as 3.6 percent yesterday, to the lowest point since 2011, data compiled by Bloomberg shows.
Lenovo is facing stiff competition from rivals that are competing on price — from Xiaomi Corp (小米) and Oppo Mobile Telecommunications Corp (歐珀移動) in mobile devices, to Quanta Computer Inc (廣達) and Wistron Corp (緯創) in the server market. Even with PCs, Lenovo lost its spot as the world’s biggest manufacturer, replaced by HP Inc, while total PC sales shrink.
Representatives from Lenovo did not respond to a request for comment.
One of Lenovo’s biggest challenges is the smartphone business, which expanded when it bought the Motorola brand in 2014 for US$2.8 billion.
In China, Lenovo is betting that the Motorola brand, as well as phones with modular designs, will help revive the mobile unit, even though its Chinese rivals have already gained a strong foothold there.
Lenovo’s best prospect for fresh smartphone sales is India, where other phone makers are also seeking a chunk of a market that saw 109.1 million smartphone shipments last year, according to IDC.
Lenovo is the fifth-largest seller of smartphones in India, after shipments declined by 25 percent in the latest quarter from the prior period. More broadly, as competition heats up heading into the year-end holiday shopping season, Lenovo will struggle to compete against newer phone models, Bocom Group analyst Chris Yim said.
“We expect smartphone competition to intensify at the high end during this year’s peak season, with the likely launch of multiple iPhone model, and key refreshes such as the Samsung Note series and Huawei Mate series,” Yim wrote in a report.
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