Abstract

Lenovo Aiming for Global Market

Based on Lenovo's financial information, during its fiscal third quarter 2005 (from October 1 to December 1), the company's revenue grew 392% year-on-year to HK$31.1 billion (US$4 billion; US$1=HK$7.8). The main reasons were strong growth in the Chinese market and the contribution from IBM's PC business, acquired in May 2004. Lenovo's PC sales grew 12% year-on-year. 

Greater China was Lenovo's largest market with revenue of HK$11.5 billion (US$1.5 billion), accounting for 37% of the total revenue. In China, the company's PC sales rose 39% and seized 37% of the market, evidence that results following the acquisition of IBM's PC unit were good.

Overseas, Lenovo's business (not including Greater China) recorded profit that had improved from previous years. In the Americas, the business looked quite stable and healthy. The company is pursuing medium and small business customers and business opportunities in fast growing emerging markets to help boost sales and lift competitiveness in regions outside China. At the same time, the company is improving its product mix to achieve the best cost structure.

Lenovo's PC business in the Americas was stable, with revenue of HK$8.9 billion (US$1.1 billion), accounting for 29% of the total revenue. Operating profit from the region was HK$196 million (US$25.2 million).

In Europe, the Middle East, and Africa, revenue and profit also improved. Combined revenue from these regions was HK$7 billion (US$900 million), or 22% of the total revenue. Operating profit was HK$14 million (US$1.8 million) after a loss in the previous quarter.

In the first quarter of 2006, following the acquisition of the IBM PC unit, Lenovo Group's gross margin rose 1.6 percentage points year-on-year to 15.3%. In the notebook PC business, market response to the company's new ThinkPad X41 tablet PC was good, and in China, an increasing number of high-end users were switching to laptops.

In the desktop PC space, Lenovo's strategy in China, together with the launch of value-line desktop PCs helped to increase sales volumes in the nation's rural areas. Its strategy of establishing customer relationships with large enterprises since 2004 also boosted Lenovo's computer sales volume. In the mobile phone business, Lenovo's sales volume soared, and the company ranked sixth in the Chinese market. As it sold its one-millionth mobile phone and kept cost under strict control, revenue rose 27%.

The cooperative effect and improved supply chain efficiency brought by Lenovo's acquisition of the IBM PC unit appeared earlier than expected. With the contribution from the IBM PC unit, the Lenovo Group's revenue soared 234% year on year. However, looking ahead, it is still uncertain whether Lenovo's growth will continue.

Great Wall Consolidates R&D Base with Joint Ventures

An overview of Great Wall International's global partnerships shows a wide range of alliances covering numerous development areas. The partnerships have two characteristics.

Mainly Cooperation with Leading International Firms

Great Wall Technology, in addition to alliances with leading international companies such as IBM, Hitachi, Elcoteq, and TI mentioned above, also has partnerships with Nokia and Microsoft. This shows that Great Wall Group's attempt is not limited to attracting investment from foreign companies. The Group also aims to acquire valuable industry experience from these giants.

Small Stake Owned By Great Wall Group in JVs

The 20% stake held by Great Wall in the IIPC joint venture between IBM and Great Wall International has been sold to Lenovo Group. In addition, the 80% stake held by IBM has been sold to Lenovo together with IBM's PC unit. Great Wall owns only 20% of ISTC, the new venture with IBM, and IBM owns the remaining 80%. 

Through interlocking stakes held by various company units, Great Wall owns only 20% of the HSPC joint venture with Hitachi. As for its joint venture with Elcoteq, Great Wall only owns a 30% stake.

Great Wall International hopes to build core technology for hard disk drive components and become a full system contract manufacturer to work with global IT hardware companies and build up a global logistics network. The company also aims to acquire R&D capabilities to prepare for the future.

Founder Gains Technology Competence by Product Co-Development

Founder Technology's partnerships with overseas companies typically focus on product development and marketing cooperation. It differs from Lenovo, which acquired IBM's PC unit to help it enter the global market, and Great Wall, whose cooperation is limited to manufacturing and whose resources allocation and operational model resemble those of contract manufacturers. Founder Technology hopes to extend its partnerships with international companies from standardized computer design to key technology development, thereby strengthening its R&D capability. Examples include Founder Technology's partnerships with AMD and Intel. This is also the strategic direction adopted by most of China's companies.

Founder Technology also expects to meet demand from emerging markets and offer new products such as educational PCs and the UMPC by teaming with international companies. This indicates that, in addition to developing standardized PCs, the company also uses alliances to gain the ability to design and develop advanced applications.

Appendix

List of Companies