I’m not sure if you watched any of the Olympics and I’m not sure if you happened to notice which company was a major sponsor in Turin, Italy. Do you remember that Lenovo Group Ltd.? That is the China-based company that acquired the notebook business from IBM (NYSE/IBM) last May.
Well guess what? Lenovo, already the largest PC maker in China and is now ranked number three in terms of worldwide PC market
share. Lenovo controls 7.2% of the PC market, trailing Dell Inc. (NASDAQ/DELL) and Hewlett-Packard Co. (NYSE/HPQ), with 17.2% and 15.7%, respectively, according to research conducted by IDC.
Now, there is a reason why it is a major sponsor at the Turin Olympics. The company is trying to strengthen its brand awareness outside of China. The purchase of IBM’s notebook unit was the first step, but Lenovo clearly has its eyes on significant expansion into markets outside of China. And guess what? Congress won’t like this. Lenovo wants to go against Dell and HP in their backyard.
Lenovo will introduce a line of low-priced desktops and notebooks under the Lenovo brand. This conjures up images of cheap Chinese furniture, clothes, toys and electronic goods, which have already driven the U.S. trade deficit to a whopping $65.70 billion in December 2005.
As I discussed in a recent column, from the period from January to December 2005, China was the third largest trading partner with the United States. The U.S.-China export-import difference was a whopping $201.70 billion in net imports. The U.S. exported a mere $41.8 billion of goods and services to China in 2005 while importing $243.5 billion.
And, now, the country will have to contend with cheap Chinese computers. Don’t forget the cheap Chinese cars–they’re coming soon to a showroom near you!
You will be able to buy a starter Lenovo desktop PC for $349. A laptop will run you $599 but I expect prices to drop as Dell and HP try to maintain their market share.
It may get ugly, but Lenovo desperately wants to become a globally recognizable brand. It has a cheap workforce and will definitely be able to produce computers at the low end and probably without a major drain on computer margins.
Now, should you worry if you own Dell or HP? It is not an issue now but if Lenovo can latch on to a major retailing chain to carry its computers, and it will happen, then you may want to be concerned. Of course, Lenovo will still need to prove that its computers are on the same reliability as its American counterparts. If it does, then watch out for Lenovo as it marches in.