by winston » Mon Jul 28, 2008 8:34 am
Not vested.
Keys to the future
Alfred Liu
Monday, July 28, 2008
Computer maker Lenovo Group (0992) plans to focus on developing emerging markets while further strengthening its mainland business after reaping the fruits of its acquisition of IBM's personal computer business three years back.
Lenovo reported revenues for the fiscal year ended March 31 rose 17 percent to US$16.4 billion (HK$127.92 billion), with net profit skyrocketing 200.6 percent to a record US$484 million from US$161 million the previous year.
Gross profit margin climbed to 15 percent from 13.5 percent.
Chief financial officer Wong Wai- ming said the cost pressure brought on by restructuring was over, as 2007/08 was already the third year after the IBM acquisition.
Commenting on the colossal 200.6 percent jump in net profit, Wong conceded it would be difficult for Lenovo to achieve such impressive growth again this year.
He added that the group's target is to outperform the market average for growth. To achieve this, Lenovo will concentrate its development on fast- growing markets including Africa, Middle East and East Europe; as well as boost its market share in the mainland.
Wong said emerging markets are different from those that are already mature. For emerging markets, international brands may not be able to make inroads, but the market share of local brands may be larger.
Lenovo - based in Beijing and North Carolina - believes its experience in operating in the mainland market will help it in developing new markets while continuing to strengthen it'ss market position in the mainland.
Wong said the company's market share in the mainland exceeds 20 percent, particularly in coastal cities. Now it aims to tap inland and rural parts of the country to maintain growth.
In addition, it hopes to improve its distribution network to reach more customers.
"Five to six years ago, chairman Yang Yuanqing already saw the importance of the distribution network. When our competitors concentrated on developing first-tier cities like Beijing, our management team already started to expand in second-tier cities," Wong said.
"Today, Beijing is surely different than it was five to six years ago. But, today's Chongqing is even much more different from the one five to six years ago. Our foundation of distribution network is better than our competitors."
Wong said Lenovo still intends to expand its penetration in developed markets such as the United States and Europe, which currently are relatively small.
With its acquisition of IBM's personal computer unit, Lenovo became the world's third-largest computer manufacturer after Hewlett-Packard and Dell.
Wong said Lenovo expects its growth in America to be slow as the US economy is weakening, so the company has to focus on improving its operational efficiency to achieve better results. But the group anticipates its business growth in Europe will be better than that of its competitors on average.
Wong said half of Lenovo's business is from non-US dollar zones. Since gross profit margin in non-US dollar zones is higher as the greenback is weakening, the company's revenues will grow stronger in the weak US dollar environment.
Lenovo is looking to improve its operational efficiencies in its eurozone business similar to what the company is doing in the mainland.
But Wong stressed, raising operating efficiencies would not involve cutting staff. The group seeks to achieve its aims by enhancing its research and development and logistics.
Lenovo's net profit margin last year was 3 percent. Wong noted there was still room to improve the margin even though competition in the PC business was fierce and companies were being pressured to cut prices.
But he believes companies are cutting prices due to more new models coming on stream, therefore prices of older models need to be reduced in order to clear inventory.
"The personal computer business is not shrinking, but actually developing. Computers are turning from luxuries into necessities," Wong said.
The company is confident in dealing with the pressure of operating in the highly competitive PC market.
"Like the mobile phone business, operators can still earn money even if the price of a cell phone dropped from the more than HK$10,000 when the device was first launched [in the early 1990s] to around the few hundred dollars of today," Wong said.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"