Lenovo Opens Operations in the U.S.

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On June 5, Lenovo Group (NASDAQOTH: LNVGY.PK) opened its first U.S. personal computer (PC) production line in Whitsell, North Carolina. The Beijing-based company believes that having manufacturing capabilities in the U.S. will increase product delivery to consumers and offer flexibility to its PC-related services.

In October 2012, the Chinese company decided to invest in a U.S manufacturing facility with plans to expand its in-house manufacturing capabilities globally. Since 2010, Lenovo has invested in manufacturing plants and joint ventures in China and Brazil to produce PCs, smartphones and tablet computers. Although the costs of production are higher in the U.S. than in China, Lenovo sees an opportunity for long-term growth in the U.S. market.

“Lenovo has achieved record growth and market share in the U.S. PC market and the Whitsell manufacturing facility will enable us to further our presence here,” said Yuanqing Yang, Chairman and CEO at Lenovo. Mr. Yang has set ambitious goals--he wants Lenovo to become the number one PC maker this fiscal year.

Market share and earnings

In the first quarter, Lenovo outpaced the PC market, which recorded a fourth consecutive quarter of year over year shipment declines. Worldwide PC shipments fell 13.9% during the quarter, according to data compiled by International Data Corp. Consumers have switched to affordable and portable devices such as smartphones and tablet computers, dampening PC sales across all regions.

<img alt="" src="http://g.fool.com/editorial/images/48592/pc-growth_large.png" />

Source: IDC

Hewlett Packard (NYSE: HPQ) topped the PC market with 15.7% market share on 11.9 million shipments, down from 17.7% and 15.7 million during the same period last year. HP supported its PC slump with poor second quarter earnings results.

HP earned $1.1 billion, or $0.55 per share, down 32% from $1.6-billion year over year. Net revenue totaled $27.6 billion, down 10%. The company recorded revenue of $7.6 billion from its PC unit, down 20% year over year. CEO Meg Whitman blamed the PC market contraction for the drop in sales.

Despite negative earnings growth, the company improved its cash management and operations with its current restructuring program. HP boosted cash flow from operations to $3.6 billion, up 44% over the prior year. For fiscal 2013, HP expects to report free cash flow of $7.5 billion and offset its PC losses with new products in the mobile computing marketplace.

Lenovo narrowed the gap on HP with 15.3% market share, up from 13.2%, and shipped 11.7 million units. Lenovo's quarterly profit rose 90% (discussed here) on PC sales to outperform the overall PC market. Dell (NASDAQ: DELL) gained 11.8% market share with 9 million shipments, reporting a 10.9% decline in year over year shipments. Acer Group and ASUS trailed Dell with 8.1% and 5.7% share, respectively.

Dell, similar to HP, is currently restructuring its business operations. The company reported deteriorating PC sales in its latest quarterly earnings, but its enterprise solutions business offset those losses. Net income dipped 79% to $130 million, or $0.07 per share, from $635 million, or $0.36 per share a year ago. Revenue came in at $14.07 billion, down 2% from $14.42 billion. Dell saw its enterprise solutions sales balloon to $5.5 billion, up 12%, while its PC division netted $8.9 billion in sales, down 9%.

On July 18, Dell will hold a shareholder vote on a $24.4 billion buyout bid to take the company into private ownership by Michael Dell and private-equity firm Silver Lake Partners. CEO Michael Dell believes taking his company private will help further the restructuring process while avoiding public scrutiny.

Mobile Computing Growth

International Data Corp expects tablet computers to grow 58.7% in 2013 with global shipments reaching 229.3 million, up from 144.5 million last year. Worldwide PC shipments are predicted to fall 7.8% in 2013, opposed to initial estimates of 1.3%.

<img alt="" src="http://g.fool.com/editorial/images/48592/idcfor_large.png" />

Source: IDC

With PC demand declining, PC makers have developed an array of hybrid notebook-tablet computers to differentiate and compete against Apple’s iPad and Android-based tablets such as Samsung’s line of Galaxy tablets.

HP has shifted away from Microsoft’s Windows OS in favor of Android for some of its tablet offerings. HP has launched high- to mid-low tier tablet-notebook computers such as the Chromebook and the Slate 7 for $329 and $169, respectively, to take sales away from competing tablet makers.

Dell aims to launch the XPS II, an 11.6-inch Windows 8 tablet-like laptop, to enhance its mobile ecosystem. The XPS II will release during this year’s holiday season.

Lenovo has penetrated the tablet market with mid-low tablet computers such as Yoga, but remains determined to become the top smartphone vendor in the Chinese market within two years. The company also wants to penetrate the U.S. smartphone market within one year.

“The PC will not die, but the future PC is not the past PC,” Mr. Yang told reporters at the Fortune Global Forum in China.

The massive wave of mobile computing has done much to unseat the major players in the PC market, including venerable technology names like Hewlett-Packard. However, HP's rapidly shifting its strategy under the new leadership of CEO Meg Whitman. But does this make HP one of the least-appreciated turnaround stories on the market, or is this a minor blip on its road to irrelevance? The Motley Fool's technology analyst details exactly what investors need to know about HP in our new premium research report. Just click here now to get your copy today.


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