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Wednesday, 11 February 2009
Lenovo PC manufacturing strategy ‘needs rethink’
Mainland technology giant Lenovo Group needs a radical rethink of its personal computer manufacturing strategy to keep up with more efficient rivals and grow amid the economic slump, analysts say.
Mainland technology giant Lenovo Group needs a radical rethink of its personal computer manufacturing strategy to keep up with more efficient rivals and grow amid the economic slump, analysts say.
The world’s second-largest personal computer supplier has committed to refocus on the mainland and expand its portfolio of mini-notebooks, commonly known as netbooks, to meet increasing demand for these low-cost machines, while remaining steadfast to using its in-house manufacturing capabilities.
“Unfortunately, a change in that production strategy has not been addressed by Lenovo’s management,” said JP Morgan analyst Charles Guo.
“The company wants to compete more aggressively in the low-cost netbook market segment, but it does not have the same low-cost operating structure as its competitors.”
Lenovo has been keen to establish an overseas manufacturing network to support its overseas expansion, according to Joseph Ho, an analyst at Daiwa Institute of Research.
It has invested more than US$30 million to build new manufacturing plants and order-fulfilment centres at Baddi in India and in Monterrey, Mexico, to support requirements in those geographic areas.
Lenovo’s other plants are in Beijing, Huiyang, Shanghai, Shenzhen, Pondicherry in India and in North Carolina in the United States.
Mr. Guo said Lenovo had highlighted its cost advantages with in-house production and it first must have economies of scale, represented by growth through acquisitions, to get more attention from third-party contract manufacturers.
So the company has only sought outside help, from original design manufacturers (ODMs), on occasions when a small volume of units could not be handled by its own production facilities. “But how can Lenovo gain the trust of ODMs in that case and still keep pace with changes in the market?” Mr. Guo said.
He said that lack of relationship had resulted in situations whenever there was a rush of orders, ODMs would put the requirements of its most valued customers - including Hewlett-Packard, Dell, Acer, Asustek Computer and Apple - ahead of Lenovo’s.
“There has been the sense that Lenovo has been slow and poorly positioned to respond to personal computer market conditions,” said Richard Shim, an analyst at technology research firm International Data Corp (IDC). “At the same time, competitors such as Acer and Asus have been pushing prices down in the notebook market, making it harder for Lenovo because of its high-end premium personal computer strategy.”
The reality is Lenovo’s in-house manufacturing model means it has high operating costs, according to a recent analysts’ report from JP Morgan.
It added that a weaker personal computer market this year would likely cause further margin erosion for Lenovo in its current and next fiscal years.
“Look at the company’s cash level. It continues to decrease,” said Mr. Guo.
The computer maker’s net cash reserves in its fiscal third quarter to December totalled US$1.3 billion, down from US$1.5 billion in the previous quarter.
Mr. Ho predicted Lenovo’s cash reserves would fall about US$1 billion in the quarter to next month.
Lenovo apparently must also act soon to kindle a more significant ODM strategy, as major competitors are accelerating contract manufacturing and distribution initiatives.
Asustek, currently the world’s second-largest netbook maker behind market leader Acer, last month formed an alliance with Taiwanese contract-manufacturing giant Hon Hai Group and American electronic goods retailer Best Buy to broaden its coverage of the netbook market in the US.
The deal has Hon Hai handling netbook production based on Asustek’s design and specifications, while Best Buy will be responsible for US distribution.
Preliminary estimates from IDC forecast worldwide netbook sales this year will reach 21.6 million units, up from 11.4 million units last year.
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Lenovo PC manufacturing strategy ‘needs rethink’
Bien Perez
10 February 2009
Mainland technology giant Lenovo Group needs a radical rethink of its personal computer manufacturing strategy to keep up with more efficient rivals and grow amid the economic slump, analysts say.
The world’s second-largest personal computer supplier has committed to refocus on the mainland and expand its portfolio of mini-notebooks, commonly known as netbooks, to meet increasing demand for these low-cost machines, while remaining steadfast to using its in-house manufacturing capabilities.
“Unfortunately, a change in that production strategy has not been addressed by Lenovo’s management,” said JP Morgan analyst Charles Guo.
“The company wants to compete more aggressively in the low-cost netbook market segment, but it does not have the same low-cost operating structure as its competitors.”
Lenovo has been keen to establish an overseas manufacturing network to support its overseas expansion, according to Joseph Ho, an analyst at Daiwa Institute of Research.
It has invested more than US$30 million to build new manufacturing plants and order-fulfilment centres at Baddi in India and in Monterrey, Mexico, to support requirements in those geographic areas.
Lenovo’s other plants are in Beijing, Huiyang, Shanghai, Shenzhen, Pondicherry in India and in North Carolina in the United States.
Mr. Guo said Lenovo had highlighted its cost advantages with in-house production and it first must have economies of scale, represented by growth through acquisitions, to get more attention from third-party contract manufacturers.
So the company has only sought outside help, from original design manufacturers (ODMs), on occasions when a small volume of units could not be handled by its own production facilities. “But how can Lenovo gain the trust of ODMs in that case and still keep pace with changes in the market?” Mr. Guo said.
He said that lack of relationship had resulted in situations whenever there was a rush of orders, ODMs would put the requirements of its most valued customers - including Hewlett-Packard, Dell, Acer, Asustek Computer and Apple - ahead of Lenovo’s.
“There has been the sense that Lenovo has been slow and poorly positioned to respond to personal computer market conditions,” said Richard Shim, an analyst at technology research firm International Data Corp (IDC). “At the same time, competitors such as Acer and Asus have been pushing prices down in the notebook market, making it harder for Lenovo because of its high-end premium personal computer strategy.”
The reality is Lenovo’s in-house manufacturing model means it has high operating costs, according to a recent analysts’ report from JP Morgan.
It added that a weaker personal computer market this year would likely cause further margin erosion for Lenovo in its current and next fiscal years.
“Look at the company’s cash level. It continues to decrease,” said Mr. Guo.
The computer maker’s net cash reserves in its fiscal third quarter to December totalled US$1.3 billion, down from US$1.5 billion in the previous quarter.
Mr. Ho predicted Lenovo’s cash reserves would fall about US$1 billion in the quarter to next month.
Lenovo apparently must also act soon to kindle a more significant ODM strategy, as major competitors are accelerating contract manufacturing and distribution initiatives.
Asustek, currently the world’s second-largest netbook maker behind market leader Acer, last month formed an alliance with Taiwanese contract-manufacturing giant Hon Hai Group and American electronic goods retailer Best Buy to broaden its coverage of the netbook market in the US.
The deal has Hon Hai handling netbook production based on Asustek’s design and specifications, while Best Buy will be responsible for US distribution.
Preliminary estimates from IDC forecast worldwide netbook sales this year will reach 21.6 million units, up from 11.4 million units last year.
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