On Saturday, September 7, 2013, Barrons published an article written by Leslie P. Norton, titled Lenovo Attacks (http://online NULL.barrons NULL.com/article/SB50001424052748704131804579053021180800410 NULL.html?mod=BOL_hps_highlight_top#articleTabs_article%3D1). I came away from this article with some points about Lenovo, including:
- Operating profit margin – 2.4%
- #2 position in China’s smart phone market
- 7% of what Leslie P. Norton notes IDC refers to as the ” . . . global ‘smart interconnected device market’ . . . “
- #1 position in global market for PC manufacturers
- Plans on entering the U.S. market for smart phones in 2014
Here’s what I think the most important of these points portends for the market for smart phones, PCs and tablets:
1) Lenovo’s 2.4% operating profit margin
Samsung and Apple are likely learning to live on much tighter profit margins as they both build defensive strategies against Lenovo’s “attack markets” (quoted from Leslie P. Norton’s article on Barrons, a link to which has been provided above). As both of these market leaders look for greater efficiency from existing feature sets, I think the importance of the high end of the smart phone market, globally, will diminish for all of the contenders. Absent any real break away new features, these devices must, inevitably evolve into even more of a commodity.
2) Lenovo’s #2 position in China’s smart phone market
With Lenovo taking market share from Samsung in China, I think Apple’s deal with China Mobile will not be the earth shaking event investors have been waiting for. The skew between Lenovo’s operating margin at 2.4% vs. Apple’s at 29% is just too great, in my opinion, for Apple to overcome. If they do succeed in taking share from Lenovo and Samsung, it will have to be on the low end of the product spectrum. Given Apple’s historical product marketing strategy (they sell MSRP $2500.00 “AirBooks”, where Lenovo sells similar powered devices in the MSRP $900 – $1100.00 range), I can’t see them “going there”.
5) Plans on entering the U.S. market for smart phones in 2014
If emerging markets are promising a vast new expansion of smart phone customers, why is Lenovo looking to further cannibalize the U.S. market? My conclusion is the cost of these devices is too expensive for the next tier of emerging markets, so estimates of global market size have been overstated. Planning on a slimmer global market should help investors glean the right information from press announcements from the industry leaders, while carefully maintaining a watchful eye over share price inflation.
Ira Michael Blonder (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)
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