The Good Times Roll at Lenovo

(page 2 of 2)

Acer: Also-Ran in the Mainland

Lenovo can always count on the advantage of a giant home market. In China, the world's second-largest PC market after the U.S., the company continues to enjoy a big lead. According to Lenovo's earnings announcement, its sales in Greater China (which include Hong Kong and Taiwan but are overwhelmingly a reflection of sales in the mainland) surged 26.5% to $1.8 billion, and accounted for 41% of the company's overall revenue.

That home-court advantage is something executives at Lenovo's Taiwanese rival, Acer, can hardly imagine. While Acer is strong in Europe and making more of an effort in the U.S. via the Gateway acquisition, the company remains an also-ran in China, where no one is within shouting distance of No. 1 Lenovo. In a bit of wishful thinking, execs at Taiwanese companies once tried to convince people that they were as Chinese as companies based in the mainland. "They used to say that China was also their domestic market," says Tony Tseng, an analyst with Merrill Lynch (MER) in Taipei. So far, they have had little to show for that claim. "The Chinese government wants to promote their own brands, so it has been more challenging for Taiwanese to build up their brands" in the mainland.

One possible way to chip away at Lenovo's big Chinese advantage is for Acer or some other foreign company to acquire one of Lenovo's local rivals. For instance, there have been rumors for months that Dell might buy Founder, a second-tier Chinese PC maker, in order to jump-start its China business. Acer has also been the subject of speculation, but Acer CEO J.T. Wang says for now the company isn't interested in trying to buy a Chinese company.

"I don't rule out the possibility" of Acer trying to make a deal (BusinessWeek, 10/29/07), he said in an interview with BusinessWeek last week.

But with Acer now focusing on digesting Gateway and Packard Bell, "we are not in a hurry." Moreover, with a presidential election in Taiwan set for early next year, uncertainty about the political climate between the mainland and Taiwan makes it even more difficult for a company such as Acer to make a move on Lenovo's turf. "We have to be careful," said Wang. "No matter how much we emphasize that we are a global company, China says you are a Taiwanese company."

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau .