Bloomberg News

Apple Surpasses Lenovo Sales in China on Strength of IPhones

July 22, 2011

(Adds Lenovo CEO’s comment in 18th paragraph.)

July 22 (Bloomberg) -- Apple Inc. may have surpassed Lenovo Group Ltd.’s revenue in China and surrounding region for the first time in at least a decade as the iPhone-maker’s surge in sales hurt growth at the biggest Chinese computer maker.

Lenovo’s combined revenue in China, Hong Kong and Taiwan last quarter lagged behind the $3.8 billion for Apple, according to four analysts surveyed by Bloomberg News. Lenovo, which acquired International Business Machines Corp.’s personal computer business in 2005, this week added two new tablets in the U.S. featuring Google Inc.’s Android software to take on Apple in its home turf.

Overtaking Lenovo within two years of introducing the iPhone in China shows the progress Chief Executive Officer Steve Jobs is making in luring buyers in the world’s fastest-growing major economy. Chief Operating Officer Tim Cook told analysts this week the Cupertino, California-based maker of Macintosh computers is only “scratching the surface” in the country.

“Apple is doing very well in China,” said Jean-Louis Lafayeedney, who rates Lenovo shares “buy” at JI Asia in Hong Kong. Apple’s growth may become a concern for Lenovo unless the Chinese company increases sales of its new smartphones and tablet computers soon, he said.

Lenovo generated $3 billion in sales from mainland China in the quarter ended June 30, according to Jenny Lai, head of Taiwan research at HSBC Holdings Plc. She had the highest of the analysts’ estimates in the Bloomberg survey.

Greater China

All four analysts polled said Lenovo’s revenue from Hong Kong and Taiwan weren’t enough to take the company’s total for the greater China region past that of Apple’s. That would make it the first time Apple posted higher sales than Lenovo in the region since at least 1998, when the Chinese company acquired parent Legend Group’s PC business.

Lenovo, due to report earnings next month, rose 1.6 percent to HK$5.14 as of 11:33 a.m. in Hong Kong trading today. The stock has gained 3.2 percent this year, underperforming shares of Apple, which have advanced 20 percent in the U.S.

Expansion into China and other emerging markets helped make up for slower growth in the U.S. Sales in China, Taiwan and Hong Kong have totaled $8.8 billion in the first three quarters of the fiscal year, Apple said.

“China was very key to our results,” Chief Operating Officer Tim Cook, who is handling day-to-day leadership during Jobs’s medical leave, said July 19. “This has been a substantial opportunity for Apple, and I firmly believe that we’re just scratching the surface right now.”

Tablet Computers

For Beijing and North Carolina-based Lenovo, Apple’s gaining popularity means increasing competition in China, where its brand adorns every personal computer out of three.

The introduction of tablet computers by competitors weakened growth in China’s PC market, Lenovo Chief Executive Officer Yang Yuanqing said in February. Apple started selling its iPad tablet in China in September 2010.

Lenovo, formerly known as Legend Holdings Ltd., in 1998 acquired the PC manufacturing business of its parent, which became the biggest computer vendor in China in 1996, according to the company’s website.

“We do not comment on the business results of other companies,” Lenovo said in an e-mail. “Our results in China have been strong. Lenovo is the number one PC company in China with more than 30 percent market share -- more than 3 times our nearest competitor.”

LePad Tablet

Carolyn Wu, a spokeswoman at Apple in Beijing, declined to comment on the sales comparison between the companies.

“The iPad has eroded sales at not only Lenovo, but all local computer makers,” said HSBC’s Lai.

Lenovo’s better knowledge of the Chinese market gives the company an advantage over Apple, Chairman Liu Chuanzhi said in January. The Chinese computer vendor will rely on new products such as smartphones and tablets to counter Apple, he said.

Lenovo, which bought the PC unit of IBM in 2005 to expand outside China, said this week it will start selling two tablet computers based on Google Inc.’s Android technology in the U.S. in the coming month, and add another device powered by Microsoft Corp.’s Windows 7 in the fourth quarter. The Chinese company started selling its LePad tablet in its home market in March.

Apple Store

“Our products will be competitive,” Yang said today in Hong Kong, where Lenovo held a shareholders meeting, noting the new tablet devices were priced lower than similar Apple products. He reiterated Lenovo’s target to increase its share of the tablet market in China to 20 percent this year.

Apple didn’t open its first store in China until 2008. Apple’s stores in Beijing and Shanghai generate, on average, the company’s highest traffic and highest revenue, Chief Financial Officer Peter Oppenheimer said in January.

In 2009, Apple began sales of its best-selling iPhone in China through a partnership with China Unicom (Hong Kong) Ltd., the country’s second-biggest mobile carrier. China Mobile Ltd., the world’s largest mobile-phone company by users, said last month it held talks with Apple regarding offering of iPhones.

“Lenovo is playing catch up in the tablet and smartphone market, and it’s going to be difficult for them,” said Vincent Chen, who rates the stock “hold” at Yuanta Securities in Taipei. “Apple is such a strong brand that it’s hard to see any one single company that could compete against them.”

--Editors: Anand Krishnamoorthy, Young-Sam Cho.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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