Saturday, November 14, 2015

Lenovo Group Posts First Quarterly Loss in Six Years

Lenovo Group Posts First Quarterly Loss in Six Years

Chinese PC maker goes $714 million in the red as it works to integrate two U.S. acquisitions

WSJ November 13, 2015

Lenovo Group, the world's largest personal computer vendor by shipments, has declared it's first quarterly net loss in more than 6 years. The two main reasons for this decline lay in the decreased global demand in the PC market as well as Lenovo's recent $5 billion acquisition of Google's Motorola and IBM's x86 server unit. The two reasons for this loss are well illustrated in an article I found online from August 2015 when the quarter of loss was beginner for Lenovo. 

"Lenovo's Tough Quarter" August 2015 by Jan Dawson

Jan Dawson comments on the fact that the acquisition of  Motorola could have been a strategy to build scale and break into new markets for Lenovo but has turned out to be a defense in the decline of the smartphone market in China. The tough quarter of Lenovo also is in part of their being exposed to the carrier-subsidized segment which is decreasing due to pressures from the government.

Acquiring Motorola did helped Lenovo face their declining shipments in the short run, but it has also dragged on their business on the  international scale especially in the American market.  

Dawson also comments on the American segment and also adds that Brazil impacted Motorola business. In the area of decreasing demand in the PC market Lenovo faces a shrinking market overall and its sales are not enough to help in the challenging environment. In the WSJ article Lenovo has given the solution that they are going to "focus on the company's strength in traditional smartphone sales rather than battling Xiaomi Corp. in China's fiercely competitive low-cost online space."This will allow a streamlining and simplifying product portfolio focusing on more compelling and better differentiated models. According to the article by Dawson, it is important to note Lenovo's embrace of new domestic channels which includes the launch of the ShenQi online store and the ZUK Z1 phone through that channel. This directly related to chapter 15 and 16 as Lenovo is trying to gain market access through different channels which will provide aid in the challenging external environment as well as the trend in the decreasing consumer demand.
The WSJ article also includes Lenovo's outlook into aiming for growth in the international markets in India and Indonesia. Lenovo is trying to get out of their losses by entering new markets but it will also have to take into consideration product and marketing adaptation to go into these new markets. It will be interesting to see the outcome of Lenovo's new venture and also the repercussions of the current impact of decreasing demand and sales of smartphones and PC's.

-Katherine Wojtyna (11/14/15)

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