In the embattled business of making PCs, the winner may be the company that loses most slowly.
Right now, that company is Lenovo Group (992:HK). The China-based hardware giant is the only player in the game holding its ground. In doing so, it’s picking up share from long-suffering rivals such as Dell (DELL) and Hewlett-Packard (HPQ).
Lenovo was the sole highlight in a dismal report on first-quarter PC shipments yesterday. Just 76 million computers changed hands in the first three months of the year, a 14 percent drop from the year-earlier period, according to International Data Corp. That’s the biggest drop the market research company has recorded since it started tracking PC traffic in 1994 and more evidence that PCs may never recover the market share they’re losing to tablets and giant smartphones.
A lackluster reception for Windows 8, Microsoft’s (MSFT) latest competitive threat and a purported tablet killer, didn’t help. Nor did turmoil in the board rooms of HP and Dell.
HP, the industry gorilla, posted a 24 percent drop in PC shipments in the quarter, second only to a 31 percent plummet at Acer Group (2353:TT) (the maker of the tiny notebook computers that iPads eat for breakfast).
Lenovo, meanwhile, held perfectly steady with 11.7 million PCs sold. If it can keep that up in the current quarter, it will no doubt oust HP from its perch as market leader.
“There is plenty of room to take share in this market,” Lenovo spokesman Brion Tingler told Bloomberg News.
So what’s Lenovo doing that Meg Whitman and company aren’t? Three major things:
1) A China strategy that goes beyond Beijing and Shanghai. Lenovo has only 15 percent of the PC market worldwide, but its share in China is approaching 40 percent. Asia is Lenovo’s home turf, and it is defending it fiercely.
2) Buying into Brazil. Lenovo is building a $30 million factory in São Paolo, and it closed a $147 million deal in January to buy CCE, a major Brazilian computer maker. The acquisition gives Lenovo cheap access to the world’s No. 3 PC market.
3) Vertical integration … at least a bit. Lenovo makes almost one-third of its products in house, which helps it innovate and get those innovations to the market more quickly. The stripped down supply chain also allows Lenovo to rely less on factories that are also making computers for its competitors.
Scratching to the top of the PC market, however, will be a hollow victory. Not only are customers disappearing, but margins are shrinking fast, as companies scrap for the shrinking PC pie.
“Lenovo certainly has momentum,” says IDC analyst Jay Chou. “But they’ve been less sensitive in trying to maintain margin. Dell, in particular, plans to pursue it on that front.”