Forget The Temporary Worries, Lenovo Built To Continue Winning
Jul 29 2013, 14:30
Every time a new consumer tech gadget comes out, it seems like investors forget a simple a rule - sooner or later, everything becomes a commodity and success comes down to who can design, build, and ship at the most appealing cost structures. That's something that Lenovo (LNVGY.PK) has quite a bit of experience with, as it has used internal execution and significant acquisitions to become the world's #1 PC vendor and the #3 handset company.
I don't see any reason to believe that Lenovo is done. The company has started to build its server business, and may ultimately strike a deal with IBM (IBM) that would vault it into the #3 slot almost overnight. Likewise, the company is looking to take its growing mobile device business into the U.S. in 2014, and Lenovo's past success in the PC business suggests that investors shouldn't ignore the potential there.
There are risks that the Chinese PC market leads to some noise in the shares over the next quarter or two, but waiting for that to settle down could mean missing a few points in the stock. With long-term appreciation potential of more than 30% to 60%, Lenovo looks like a good play on emerging markets consumer and business spending.
PCs - Drive Profits In The U.S. And Europe, Growth In The Emerging Markets
This isn't the time or place to debate the long-term future of the PC market in great detail, but I'm of the opinion that the PC market is not going to vanish anywhere near as quickly as the gadget hounds believe. Smartphones and tablets may be fine for social media, games, and music/movies, but they're pretty lousy for work and I don't see that changing any time soon.
To that end, I don't view Lenovo taking the #1 market position in the global PC market in the second quarter of 2013 as the company getting a really nice seat on the deck of the Titanic. Strong positions in markets like the U.S. and Japan generate good cash flow for the company, and Lenovo still has the opportunity to not only improve its margins in Europe, but take further share from Hewlett-Packard (HPQ) and Acer. Likewise, I think the company has room to prosper from good decision-making - Lenovo has been slow to make a big commitment to touch-based notebooks, and that spared the company the problems that rising inventories of unsold touch products have caused rivals like ASUS.