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RealTime IT News

Lenovo Cautious on Expansion in U.S. Consumer Market

LAS VEGAS -- Lenovo’s chairman said the company is insulated for now from a possible U.S. recession as the company introduced its first nonbusiness PC line in that country.

But Yuanqing Yang cautioned in an interview at the Consumer Electronics Show in Las Vegas that the Chinese economy has become highly dependent on U.S. market demand, and that could hurt Lenovo over time.

"China relies on exports. I think, if the U.S. economy has some problems, it will impact China's economy," Yang said.

Shares of Lenovo fell 11.9 percent to HK$5.78 in Hong Kong on Wednesday, knocking more than US$800 million off the company's market value. Traders cited U.S. recession fears for a broad Asia sell-off.

Last week, Lenovo, China's largest maker of personal computers, moved forward with a long-anticipated international expansion by introducing a new line of consumer PCs in a dozen countries, including the United States, France and Australia.

Through its acquisition of IBM's PC business three years ago, Lenovo is also one of the world's top three sellers of business PCs, known specifically for its ThinkPad notebook line.

Yang said the main thrust of Lenovo's expansion is into emerging markets, such as Russia, Brazil, South Africa and Southeast Asia.

"Ultimately, we will focus on emerging markets because growth there is faster than in mature markets. Also, as a Chinese company, we have more experience in emerging markets," Yang said.

Lenovo aims to capitalize on a low-cost business model that has made it China's dominant PC maker and which has catapulted it to No. 2 in India within just 18 months.

Initially, the company has said it only plans to introduce a limited number of stylish notebooks aimed at three U.S. hot consumer niches: PCs for multimedia, video gaming and ultraportable users. It has no U.S. plans to sell desktop PCs.

"Given that our [consumer] market share outside China is zero, I don't think it [the risk of a U.S. recession] will have a significant impact on our expansion plan," Yang said.

Yang said Lenovo will focus its consumer strategy in the U.S. market on premium customers attracted by innovative engineering and design, and ruled out introducing cut-rate models to grab share based on its low-cost global production capacities in China, India, Mexico and Poland.

"In mature markets I don't think we will go to the low-end quickly," said Yang, who a year ago moved from Beijing to live near Lenovo's Raleigh, N.C., headquarters. Its lowest cost U.S. consumer notebook model starts at $895.

Yang said Beijing-based Lenovo will test how its limited line of consumer PCs works in the initial dozen or so markets before deciding whether to expand to other national markets.

Analysts say Lenovo's biggest challenge in entering a mature market such as the United States is winning shelf space at major retailers. Initially it will sell through BestBuy.com, Newegg.com and Tiger Direct, another online seller.

"I think it's a smart approach to gradually expand your product portfolio," Yang said.

Worldwide, Lenovo ranked fourth behind Hewlett-Packard, Dell and Acer in third-quarter PC shipments, according to research firm Gartner. In the United States, where Lenovo has previously sold only business computers, it ranked sixth.