Lenovo Surpasses HP as the Leading PC Maker

By | Jul 23, 2012

In the realm of PC makers, no single company has gained a stranglehold on the market. Big brand names such as Apple, Dell, HP, and Acer have been continually battling one another for the industry's top spot. According to a report by Reuters, Lenovo has surpassed Hewlett-Packard as the world's biggest PC maker in sales. Not only does this news demonstrate China's recent evolution in the technology spectrum, but it also highlights the tight competition between the different PC brands.

The company's growth can be attributed to a number of factors, primarily their decision to cut profit margins in favor of increased sales. Lenovo's operating margin is a miniscule 1.4 percent, which can be contrasted against Dell's 6.2 percent and HP's whopping 7.4 percent. Dickie Chang, an analyst for research firm IDC, stated, "HP, Dell, and Acer have switched lanes in the PC race and passed the baton to Lenovo in terms of focusing on sales rather than margins."

Despite reduced profits, Lenovo's aggressive pricing methods are reflective in their increased market share. Lenovo overtook Dell's No. 2 position in PC sales during the third quarter of last year, and they have since narrowed the gap between themselves and HP. In fact, IDC estimated that Lenovo had a 14.9 percent market share during the April-June quarter, while HP was only barely ahead at 15.5 percent. Gartner believes that the difference in market share was even smaller than IDC's original estimate, with HP and Lenovo separated by a mere 0.2 percent.

Investors have clearly been pleased by Lenovo's efforts and the company's stock price has risen by approximately 16 percent this year. Unfortunately, HP, Dell, and Acer have been granted a considerably different fortune, with all three companies witnessing their stocks fall during the same time period.

Although Lenovo appears to be a blossoming corporation, they might still be in a risky situation. PC market growth has been constantly slowing down, especially in China--Lenovo's country of origin and major target market. In fact, 42 percent of Lenovo's revenue comes from China, with the majority of their sales being PCs. "We remain positive on Lenovo's market share expansion, but the absolute growth is nevertheless being negatively impacted by a slower market," explained Jefferies, a global securities and investment banking group.

Midsize businesses should view Lenovo's takeover of the top position as an indication of where the PC market is headed. The tight competition between PC manufacturers demonstrates that no individual company has earned a monopoly on the PC sector. This means that desktop and laptop prices should remain reasonable and both software and hardware upgrades should occur frequently; a desperate attempt by PC companies to appeal to consumers and distance themselves from the competition. IT directors will see this as a benefit, as there will be a wider variety of PCs to choose from (all coming from several different manufacturers) and each one will feature the latest technological advancements.

That said, IT firms should be concerned by the slow market that has negatively affected the top PC brands. The decrease in growth rate is most likely due to the emergence of tablets for home and office use. Although the release of Windows 8 is expected to offer a temporary resurgence in PC sales, it might actually hurt the market in the long run. This is because Windows 8 has been specifically designed to incorporate touch capabilities; a feature that laptops and desktops have yet to deliver. If the tablet's popularity refuses to fade, PC manufacturers might choose to focus their efforts on the growing tablet industry. Consequently, midsize businesses might see an influx of substandard computers, with the BYOD trend picking up steam.

Since Lenovo's LePads have an essentially non-existent impact on the tablet market, the company's top position may be a short-lived move. Unfortunately for Lenovo, it seems as though the tablet movement is growing with no end. This would explain why reliable PC makers such as Dell, HP, and Acer have seen a dip in share prices, while Google, Apple, and Amazon have had recent success. The main difference between these companies is that the latter have a major tablet presence; a strong signal that tablets are overtaking laptops and desktops. Therefore, IT should acknowledge that BYOD is here to stay.

This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. Like us on Facebook. Follow us on Twitter.