Lenovo Group Limited – 2013

STRATEGIC MANAGEMENT

SUPERVISOR: DR WASEEM BARKAT

GROUP MEMBERS
Mr Arshid Ali, MR faisal khALIL, Miss farhana, Mr irshad Nizar, miss mahjabeen aslam, MR mubeen ahmed

DATE: 27 NOVEMBER 2023

Table of Contents
Case Abstract.................................................................................................................................................3

History of Lenovo:.........................................................................................................................................3

Vision Statement (actual)...............................................................................................................................4

Mission Statement (proposed).......................................................................................................................5

External Audit................................................................................................................................................5

Opportunities..............................................................................................................................................5

Threats........................................................................................................................................................6

Competitive Profile Matrix............................................................................................................................7

EFE Matrix.....................................................................................................................................................8

Internal Audit...............................................................................................................................................10

Strengths..................................................................................................................................................10

Weaknesses..............................................................................................................................................10

Financial Ratio Analysis (in USD)..............................................................................................................11

Net Worth Analysis (in millions).................................................................................................................12

IFE Matrix....................................................................................................................................................13

SWOT..........................................................................................................................................................14

SO Strategies............................................................................................................................................14

WO Strategies..........................................................................................................................................15

ST Strategies............................................................................................................................................15

WT Strategies...........................................................................................................................................15

SPACE Matrix.............................................................................................................................................16

Grand Strategy Matrix.................................................................................................................................17

The Internal-External (IE) Matrix................................................................................................................19

BCG Matrix.................................................................................................................................................21

QSPM...........................................................................................................................................................23

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Recommendations........................................................................................................................................26

EPS/EBIT Analysis......................................................................................................................................27

Conclusion...................................................................................................................................................28

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 Lenovo Group Limited – 2013

Forest R. David

Case Abstract

Headquartered in Beijing, China, Lenovo designs, produces, and markets personal computers,
workstations, servers, electronic storage, IT management software, and other related products
and services. The world’s second-largest PC vendor (behind HP), Lenovo markets the ThinkPad
line of notebook computers and ThinkCentre line of desktops. With 26,300 employees, Lenovo
sells directly to consumers and businesses, as well as through online sales, company-owned
stores, chain retailers, and major technology distributors and vendors.

On September 30, 2013, in the Research Triangle Park in North Carolina, Lenovo introduced
four new all-in-one (AIO) desktop computers, including the super-widescreen Lenovo B750,
which delivers the world’s first29” 21:9 display. According to the latest rankings from IDC,
Lenovo is #1 in the worldwide consumer AIO market and the worldwide AIO market overall. All
four new models are equipped with stunning IPS displays, including three B-series PCs and the
Lenovo A530, a slim, space-saving feature.

History of Lenovo:

Lenovo Group Limited, often shortened to Lenovo is a Chinese multinational technology

company. Incorporated in Hong Kong, it has global headquarters in Beijing, China, operational
headquarters in Morrisville, North Carolina, US, and an operational center in Singapore. The
company designs, develops, manufactures, and sells personal computers, tablet computers,
smartphones, workstations, servers, supercomputers, electronic storage devices, IT management
software, and smart televisions, and is the world's largest personal computer vendor by unit sales
as of January 2021. It also markets the ThinkPad and Think Book business lines of laptop
computers; Idea Pad, Yoga, and Legion consumer lines of laptop computers; and the Idea Centre

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and Think Centre lines of desktop computers. Lenovo has operations in over 60 countries and
sells its products in around 180 countries. It has research centers in Beijing, Chengdu, Yamato
(Kanagawa Prefecture, Japan), Shanghai, Shenzhen, and Morrisville (North Carolina, US), and
also has Lenovo NEC Holdings, a joint venture with NEC that produces personal computers for
the Japanese market. Lenovo was founded in Beijing in November 1984 as Legend, and was
incorporated in Hong Kong in 1988. Lenovo acquired IBM's personal computer business in 2005
and agreed to acquire its Intel-based server business in 2014. Lenovo entered the smartphone
market in 2012 and as of 2014 was the largest vendor of smartphones in mainland China. In
2014, Lenovo acquired Motorola Mobility from Google. In 2017, Lenovo acquired Fujitsu's
personal computer business.

Lenovo is listed on the Hong Kong Stock Exchange and is a constituent of the Hang Seng China
Affiliated Corporations Index, often referred to as the "red chip" stocks.

For the first 20 years of its existence, the company's English name was "Legend". In 2002, Yang
Yuanqing decided to abandon the Legend English name to expand beyond the Chinese home
market. "Legend" was already in use by many businesses worldwide (whose products and
services (in the United States, for example) would include those from both the technological and
no technological arenas of industry and commerce), making it impossible to register in many
jurisdictions outside China. In April 2003, the company publicly announced its new English
name, "Lenovo", with an advertising campaign including huge billboards and primetime
television ads. Lenovo spent 18 million RMB on an eight-week television advertising campaign.
The billboards showed the Lenovo logo against blue sky with a slogan that read, "Transcendence
depends on how you think." By the end of 2003, Lenovo had spent a total of 200 million RMB
on rebranding.

Vision Statement (actual)

“To create personal devices more people are inspired to own, a culture more people aspire to
join, and an enduring, trusted business that is well respected around the world.”

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Mission Statement (proposed)

Dedicated to its customers (1) by building exceptionally engineered PCs and mobile Internet
devices (2), Lenovo’s business is built on product innovation (4), a highly efficient global supply
chain (7), and exemplary ethics (6). Innovative, hardworking employees (9) allow Lenovo to
offer consumers worldwide (3) the most advanced technology (4) products, while minimally
impacting the environment (8) and profitably growing for our shareholders (5).

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

External Audit

Opportunities
1. Differentiation of key parts (batteries, display, and storage) are some of the important
features of a phone.
2. HP lost $12.6 billion in 2012.
3. Smartphone is still in the growth phase in many developing markets.
4. Increasing areas worldwide with free WiFi.
5. Apple focuses its business on consumers and does not aggressively develop products and
services for global enterprise customers.
6. Apple lacks consistent global service and support on many products.
7. Customers prefer Android based operating systems to Windows.

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8. The global smartphone market increased by 39% in 2012 in terms of units shipped, according
to International Data Corporation.
9. Many smartphone providers in the USA will offer phones at reduced prices for customers
signing 2 year contracts.
10. China is the world’s biggest market for mobile phones and PCs.

Threats
1. Supplies can be undependable at times in providing supplies in the quantity needed.
2. Apple, Dell, HP, Toshiba and Fujitsu all reported higher sales in 2012/2013 than Lenovo.
3. Apple and Samsung dominate the smartphone market with a 80% market share.
4. The PC market is on the decline.
5. Apple’s inventory turnover was 74 in 2012.
6. Price wars are starting to emerge in the industry.
7. Windows operating systems for phones have not gained near the public popularity as Apple
and Google based operating systems.
8. Microsoft is offering free software similar to Lenovo’s Think Vantage software.
9. Lenovo is also concerned about China’s ZTE Corp., which plans to become one of the
world’s top-three smartphone brands.
10. An increasing number of companies are interested in purchasing Mac computers for all or
part of their global operations.

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Competitive Profile Matrix

Lenovo Apple Dell

Critical Success Factors Weight Rating Score Rating Score Rating Score
Inventory Turnover 0.06 1 0.06 4 0.24 2 0.12
ROA 0.08 2 0.16 4 0.32 1 0.08
ROE 0.08 3 0.24 4 0.32 2 0.16
Debt/Equity 0.04 2 0.08 4 0.16 3 0.12
Quick Ratio 0.04 2 0.08 4 0.16 3 0.12
Smart Phone Market Share 0.12 2 0.24 4 0.48 1 0.12
PC Market Share 0.06 3 0.18 2 0.12 4 0.24
Customer Loyalty 0.10 2 0.20 4 0.40 3 0.30
Product Quality 0.10 3 0.30 4 0.40 2 0.20
Geographic Range 0.10 2 0.20 4 0.40 3 0.30
Price Competitiveness 0.10 3 0.30 2 0.20 4 0.40
Net Worth 0.12 1 0.12 4 0.48 2 0.24
Totals 1.00 2.16 3.68 2.40

Lenovo is a rapidly growing company that still lags both Dell and Apple based on the CPM
scores. However, as Lenovo grows and allocates more resources to smartphones, the firm will
improve its position in the industry.

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EFE Matrix

Opportunities Weight Rating Weighted Score

1. Differentiation of key parts (batteries, display, storage) are some 0.04 4 0.16
of the important features of a phone.
2. HP lost $12.6 billion in 2012. 0.01 2 0.02
3. Smartphone is still in the growth phase in many developing 0.04 2 0.08
markets.
4. Increasing areas worldwide with free WiFi. 0.01 2 0.02
5. Apple focuses its business toward consumers and does not 0.03 2 0.06
aggressively develop products and services for global enterprise
customers.
6. Apple lacks consistent global service and support on many 0.02 3 0.06
products.
7. Customers prefer Android based operating systems to 0.05 4 0.20
Windows.
8. The global smartphone market increased by 39% in 2012 in terms 0.08 2 0.16
of units shipped, according to International Data Corporation.
9. Many smartphone providers in the USA will offer phones at 0.03 1 0.03
reduced prices for customers signing 2 year contracts.
10. China is the world’s biggest market for mobile phones and PCs. 0.08 3 0.24

9|Page
 Threats Weight Rating Weighted Score
1. Suppliers can be undependable at times on providing supplies in
0.06 3 0.18
the quantity needed.
2. Apple, Dell, HP, Toshiba and Fujitsu all reported higher sales in
0.09 2 0.18
2012/2013 than Lenovo.
3. Apple and Samsung dominate the smartphone market with a 80%
0.09 2 0.18
market share.
4. The PC market is on the decline. 0.09 2 0.18
5. Apple’s inventory turnover was 74 in 2012. 0.04 2 0.08
6. Price wars are starting to emerge in the industry. 0.06 3 0.18
7. Windows operating systems for phones have not gained near
the public popularity as Apple and Google based operating 0.05 4 0.20
systems.
8. Microsoft is offering free software similar to Lenovo’s
0.04 2 0.08
ThinkVantage software.
9. Lenovo is also concerned about China’s ZTE Corp., which plans
0.07 2 0.14
to become one of the world’s top-three smartphone brands.
10. An increasing number of companies are interested in purchasing
0.02 2 0.04
Mac computers for all or part of their global operations.
TOTALS 1.00 2.47

Lenovo’s performance is average in addressing external issues, but when compared to market
giants Apple and Samsung, Lenovo is doing very well. Moving forward, the firm should allocate
increased resources to the smartphone market rather than the PC market.

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Internal Audit

Strengths
1. Strong sales position in China accounting for 43% of 2012 sales.
2. Rapidly growing firm with net income up from $129 million in 2010 to $631 million in 2013.
3. Lenovo has invested $793 million in the construction of a mobile phone manufacturing and
R&D facility in Wuhan, China. Lenovo is the world’s second-largest PC vendor (behind
HP), and markets the ThinkPad line of notebook computers and ThinkCentre line of
desktops.
4. Lenovo ranks fourth in the global tablet market by volume.
5. In July 2012, the National Football League (NFL) announced that Lenovo had become the
NFL's "Official Laptop, Desktop and Workstation Sponsor."
6. Lenovo acquired the Brazil-based electronics company CCE that sells products under the
brand name Digi bras for a base price of 300 million reais (US$148 million) in a combination
of stock and cash and an additional 400 million reais dependent upon performance
benchmarks.
7. The second-biggest smartphone vendor in China, Lenovo has begun selling smartphones in
Russia, Indonesia, the Philippines and Vietnam.
8. Lenovo focuses on vertical integration in order to avoid excessive reliance on suppliers and
to keep down costs.
9. Lenovo’s 1) China and 2) Europe Middle East and Africa sales increased 17% and 20%
respectively in FY 2013.
10. Lenovo basically has what it calls a two prong strategy: 1) Protect its commercial global PC
business and its China business; and 2) Attack three high growth opportunities in emerging
markets with smartphones, tablets, and smart TV’s.

Weaknesses
1. Mission statement is only one sentence long.
2. No COO and divisional by region when divisional by product may be more beneficial.
3. Lenovo is still primarily a Chinese PC company with 34% of all revenues coming from PC
sales in China and 81% of all Chinese sales being derived from PCs.
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4. Lenovo smartphones are not offered in Europe, USA, or Latin American markets.
5. About a tenth of Lenovo’s Q3 2013/2012 revenues came from its mobile Internet and digital
home (MIDH) business - mainly consisting of its smartphone sales in China, which jumped
77% to $998 million, though that was only 11% of total revenue.
6. Europe Middle East and Africa segment reported $6.8 billion USD in sales but only $24
million in operating profits in 2013.
7. Sales in North America were $4,939 million in 2013, lower than any market served.
8. Inventory Turnover of 20 with Apple over 70.
9. Despite improving profits, the firm’s net income in 2013 was only $631 million.

Financial Ratio Analysis (in USD)

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Profit Margin Percent Lenovo Industry
Gross Margin 11.58 22.71
Pre-Tax Margin 2.1 -0.7
Net Profit Margin 1.61 -1.59

Liquidity Ratios
Debt/Equity Ratio 0.11 0.63
Current Ratio 1.02 1.11
Quick Ratio 0.76 0.73

Profitability Ratios
Return On Equity 22.13 -6.79
Return On Assets 3.24 -1.69
Return On Capital 19.27 -3.54

Efficiency Ratios
Income/Employee 17,756 -23,976
Revenue/Employee 1.09 Mil 374,575
Receivable Turnover 12.43 6.12
Inventory Turnover 20.23 14.46
Asset Turnover 2.02 1.06

Lenovo is doing well on most financial ratios when compared to the industry average. However,
when compared to Apple’s Inventory turnover of 74 and Quick ratio of 1.54, there is room for
improvement in managing inventory. Also, the firms ROE and ROA numbers badly lag top
competitors who are more focused on smartphones than PCs.

Net Worth Analysis (in millions)

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Lenovo Company Worth Analysis
Stockholders' Equity - (Goodwill + Intangibles) -$646
Net Income x 5 $3,155
(Share Price/EPS) x Net Income $10,407
Number of Shares Outstanding x Share Price $10,935
Method Average $5,963

Apple Company Worth Analysis

Stockholders' Equity - (Goodwill + Intangibles) $112,851
Net Income x 5 $208,665
(Share Price/EPS) x Net Income $493,020
Number of Shares Outstanding x Share Price $492,975
Method Average $326,878

Lenovo is a rapidly growing company but Apple has roughly 50 times the market capitalization
of Lenovo.

IFE Matrix

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 Strengths Weight Rating Weighted Score
1. Strong sales position in China accounting for 43% of 2012 sales. 0.07 4 0.28
2. Rapidly growing firm with net income up from $129 million in
0.06 4 0.24
2010 to $631 million in 2013.
3. Lenovo has invested $793 million in the construction of a mobile
phone manufacturing and R&D facility in Wuhan, China.
Lenovo is the world’s second-largest PC vendor (behind HP), 0.07 4 0.28
and markets the ThinkPad line of notebook computers and
ThinkCentre line of desktops.
4. Lenovo ranks fourth in the global tablet market by volume. 0.04 3 0.12
5. In July 2012, the National Football League (NFL) announced that
Lenovo had become the NFL's "Official Laptop, Desktop and 0.02 3 0.06
Workstation Sponsor."
6. Lenovo acquired the Brazil-based electronics company CCE that
sells products under the brand name Digibras for a base price of
300 million reais (US$148 million) in a combination of stock and 0.04 3 0.12
cash and an additional 400 million reais dependent upon
performance benchmarks.
7. The second-biggest smartphone vendor in China, Lenovo has
begun selling smartphones in Russia, Indonesia, the Philippines 0.05 3 0.15
and Vietnam.
8. Lenovo focuses on vertical integration in order to avoid
0.05 4 0.20
excessive reliance on suppliers and to keep down costs.
9. Lenovo’s 1) China and 2) Europe Middle East and Africa sales
0.05 4 0.20
increased 17% and 20% respectively in FY 2013.
10. Lenovo basically has what it calls a two prong strategy: 1)
Protect its commercial global PC business and its China business
0.05 3 0.15
and 2) Attack three high growth opportunities in emerging
markets with smartphones, tablets, and smart TV’s.

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 Weaknesses Weight Rating Weighted Score
1. Mission statement is only one sentence long. 0.03 1 0.03
2. No COO and divisional by region when divisional by product
0.03 1 0.03
may be more beneficial.
3. Lenovo is still primarily a Chinese PC company with 34% of all
revenues coming from PC sales in China and 81% of all Chinese 0.08 1 0.08
sales being derived from PCs.
4. Lenovo smartphones are not offered in Europe, USA, or Latin
0.08 1 0.08
American markets.
5. Lenovo smartphones are not offered in Europe, USA, or Latin
0.06 2 0.12
American markets.
6. About a tenth of Lenovo’s Q3 2013/2012 revenues came from its
mobile Internet and digital home (MIDH) business - mainly
0.07 2 0.14
consisting of its smartphone sales in China, which jumped 77%
to $998 million, though that was only 11% of total revenue.
7. Europe Middle East and Africa segment reported $6.8 billion
0.06 2 0.12
USD in sales but only $24 million in operating profits in 2013.
8. Sales in North America were $4,939 million in 2013, lower than
0.04 1 0.04
any market served.
9. Inventory Turnover of 20 with Apple over 70. 0.05 2 0.10
TOTALS 1.00 2.54

The firm is doing well in managing internal resources but must start allocating increased
resources to smartphones away from PCs. Also, an increased effort on the USA market is likely
needed.

SWOT

SO Strategies
1. Build a new production plant for phones and tablets near the R&D facility in Wuhan, China
for $600 million (S1, S2, S3, S4, S7, O8, O9, O10).
2. Form an alliance with Verizon and AT&T in the USA to provide smart phones (S2, S10,
O8, O9).

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 3. Offer the equivalent of $20 off each phone for up to 1 million customers in Russia. (S1, S7,
O3, O7, O8).
4. Devote $200 million to building relationships with large multinational companies around
the world to supply their employees with smart phones (S1, S2, O5, O6).

WO Strategies
1. Spend $20 million to restructure by product and hire a COO (W1, W2, O1, O8).
2. Invest 80% of all profits generated from PCs into R&D for tablets, smartphones, and next
generation devices (W3, O3, O10).
3. Form an alliance with Verizon and AT&T in the USA to provide smart phones (W4, W7, O8,
O9).
4. Spend $50 million to develop and offer cheaper products for customers in emerging markets
(W4, W8, O3, O8, O10).

ST Strategies
1. Spend $150 million in advertising in China to market the advantages of Lenovo smartphones
over rival XTE Corp. (S1, S3,T9).
2. Further increase the vertically integrated strategy to include batteries, display, and storage for
$500 million in R&D (S3, S10, T1, T5).
3. Invest 80% of all profits generated from PCs into R&D for tablets, smartphones, and next
generation devices (S8, S10, T4).

WT Strategies
1. Further increase the vertically integrated strategy to include batteries, display, and storage for
$500 million in R&D (W8, T1, T5).
2. Spend $200 million to develop top of the line phone for the European market that will yield
higher profit margins (W6, T6).
3. Invest 80% of all profits generated from PCs into R&D for tablets, smartphones, and next
generation devices (W3, T4).
4. Divest all software operations similar to what Microsoft is offering for free (W5, T8).

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SPACE Matrix

FP
Conservative Aggressive
7

4 X = 2.0
Y = 0.2
3

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

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Internal Analysis: External Analysis:
Financial Position (FP) Stability Position (SP)
ROA 3 Rate of Inflation -2
Debt/Equity 6 Technological Changes -6
Net Income 4 Governmental Regulations -2
Revenues 4 Competitive Pressure -7
Company Worth 4 Barriers to Entry into Market -3
Financial Position (FP) Average 4.2 Stability Position (SP) Average -4.0

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -4 Growth Potential 6
Product Quality -3 Financial Stability 6
Customer Loyalty -4 Ease of Entry into Market 4
Technological know-how -3 Resource Utilization 5
Control over Suppliers and Distributors -2 Profit Potential 5
Competitive Position (CP) Average -3.2 Industry Position (IP) Average 5.2

Lenovo is located in the Aggressive Quadrant of the SPACE Matrix, suggesting the firm needs to
continue expansion into Latin America, continue its vertical integration strategies, and continue
shifting resources to smartphones.

Grand Strategy Matrix

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 Rapid Market Growth

Quadrant II Quadrant I

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

The smartphone market is rapidly growing, but the PC market is not, making it difficult to place
Lenovo inside the Grand. If the firm continues to grow its smartphone business model,
especially in China and then expanding more abroad, the firm should see continued sales growth.

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The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

China

3.0 IV V VI

The
EFE North America
Total Medium
Weighted
Scores APLA

EMEA

2.0 VII VIII IX

Low

1.0

Segment 2012 Total Sales 2012 Operating Profits

(in millions)
China $14,539 $678

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 Asia Pacific/Latin America (APLA) 6,860 24
Europe/Middle East/Africa (EMEA) 7,535 147
North America 4,939 168
Total $33,873 $1,107

Net income was $631million in 2012, but not disclosed by segment, so operating profits were
used for the pie slices. APLA region, while a strong income generator, is not operating nearly as
efficiently as the other segments. North American sales remain weak and are mostly derived
from PCs.

QUESTION MARKS
STARS
Stars generate large sums of cash These units could be build, hold, and
because of their strong relative harvest or divest, question marks have
market share, but also consume not achieved a dominant market
large amounts of cash because of position, and hence do not generate
High their high growth rate; in case of much cash, the result is a large net cash
Lenovo Tablets has a large share consumption, and Lenovo services fall
Rate of Market Growth

in the rapidly growing market. in this category.

The implication is that stars
should be mentioned and builds
by improving its quality as well as
promotion it aggressively.
Low CASH COWS DOGS
These products are said to have Lenovo cell phones are close to this
high profitability, and require low category, Dogs have a low market share
investment, the cash cows are and a low growth rate and neither
hold and harvest, Lenovo laptops generates nor consumes a large amount
and desktop computers are milk of cash.
“extracting” units, and they

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 provide the cash required to run
question marks.

High Low

Relative Market Share

BCG Matrix

The Boston Consulting Group (BCG) Matrix is a simple tool to assess a company’s position in
terms of its product range. It helps a company think about its products and services and make
decisions about which it should keep, which it should let go and which it should invest in further.

In the scenario of Hi-tech competitive environment Lenovo has achieved a considerable position
in the world market, beside all these factors and investment and growth

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QSPM

Form an
Build a New Alliance with
Production Verizon and
Plant in AT&T in the
China for USA to
Tablets and Carry
Phones Lenovo
Phones

Opportunities Weight AS TAS AS TAS

1. Differentiation of key parts (batteries, display, storage) are some
0.04 0 0.00 0 0.00
of the important features of a phone.
2. HP lost $12.6 billion in 2012. 0.01 0 0.00 0 0.00
3. Smartphone is still in the growth phase in many developing
0.04 4 0.16 2 0.08
markets.
4. Increasing areas worldwide with free WiFi. 0.01 4 0.04 3 0.03
5. Apple focuses its business toward consumers and does not
aggressively develop products and services for global enterprise 0.03 3 0.09 1 0.03
customers.
6. Apple lacks consistent global service and support on many
0.02 0 0.00 0 0.00
products.
7. Customers prefer Android based operating systems to
0.05 3 0.15 4 0.20
Windows.
8. The global smartphone market increased by 39% in 2012 in terms
0.08 3 0.24 4 0.32
of units shipped, according to International Data Corporation.
9. Many smartphone providers in the USA will offer phones at
0.03 2 0.06 4 0.12
reduced prices for customers signing 2 year contracts.
10. China is the world’s biggest market for mobile phones and PCs. 0.08 4 0.32 1 0.08

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 Threats Weight AS TAS AS TAS
1. Suppliers can be undependable at times on providing supplies in
0.06 0 0.00 0 0.00
the quantity needed.
2. Apple, Dell, HP, Toshiba and Fujitsu all reported higher sales in
0.09 4 0.36 3 0.27
2012/2013 than Lenovo.
3. Apple and Samsung dominate the smartphone market with a 80%
0.09 3 0.27 4 0.36
market share.
4. The PC market is on the decline. 0.09 3 0.27 1 0.09
5. Apple’s inventory turnover was 74 in 2012. 0.04 3 0.12 2 0.08
6. Price wars are starting to emerge in the industry. 0.06 0 0.00 0 0.00
7. Windows operating systems for phones have not gained near
the public popularity as Apple and Google based operating 0.05 0 0.00 0 0.00
systems.
8. Microsoft is offering free software similar to Lenovo’s
0.04 0 0.00 0 0.00
ThinkVantage software.
9. Lenovo is also concerned about China’s ZTE Corp., which plans
0.07 4 0.28 2 0.14
to become one of the world’s top-three smartphone brands.
10. An increasing number of companies are interested in purchasing
Mac computers for all or part of their global operations. 0.02 0 0.00 0 0.00

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 Form an
Build a New Alliance with
Production Verizon and
Plant in AT&T in the
China for USA to
Tablets and Carry
Phones Lenovo
Phones
Strengths Weight AS TAS AS TAS
1. Strong sales position in China accounting for 43% of 2012 sales. 0.07 4 0.28 1 0.07
2. Rapidly growing firm with net income up from $129 million in
0.06 4 0.24 3 0.18
2010 to $631 million in 2013.
3. Lenovo has invested $793 million in the construction of a mobile
phone manufacturing and R&D facility in Wuhan, China.
Lenovo is the world’s second-largest PC vendor (behind HP), 0.07 2 0.14 3 0.21
and markets the ThinkPad line of notebook computers and
ThinkCentre line of desktops.
4. Lenovo ranks fourth in the global tablet market by volume. 0.04 4 0.16 2 0.08
5. In July 2012, the National Football League (NFL) announced that
Lenovo had become the NFL's "Official Laptop, Desktop and 0.02 2 0.04 4 0.08
Workstation Sponsor."
6. Lenovo acquired the Brazil-based electronics company CCE that
sells products under the brand name Digibras for a base price of
300 million reais (US$148 million) in a combination of stock and 0.04 0 0.00 0 0.00
cash and an additional 400 million reais dependent upon
performance benchmarks.
7. The second-biggest smartphone vendor in China, Lenovo has
begun selling smartphones in Russia, Indonesia, the Philippines 0.05 4 0.20 1 0.05
and Vietnam.
8. Lenovo focuses on vertical integration in order to avoid
0.05 0 0.00 0 0.00
excessive reliance on suppliers and to keep down costs.
9. Lenovo’s 1) China and 2) Europe Middle East and Africa sales
0.05 4 0.20 1 0.05
increased 17% and 20% respectively in FY 2013.
10. Lenovo basically has what it calls a two prong strategy: 1)
Protect its commercial global PC business and its China business
0.05 2 0.10 3 0.15
and 2) Attack three high growth opportunities in emerging
markets with smartphones, tablets, and smart TV’s.
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 Weaknesses Weight AS TAS AS TAS
1. Mission statement is only one sentence long. 0.03 0 0.00 0 0.00
2. No COO and divisional by region when divisional by product
0.03 0 0.00 0 0.00
may be more beneficial.
3. Lenovo is still primarily a Chinese PC company with 34% of all
revenues coming from PC sales in China and 81% of all Chinese 0.08 4 0.32 3 0.24
sales being derived from PCs.
4. Lenovo smartphones are not offered in Europe, USA, or Latin
0.08 3 0.24 4 0.32
American markets.
5. About a tenth of Lenovo’s Q3 2013/2012 revenues came from its
mobile Internet and digital home (MIDH) business - mainly
0.06 0 0.00 0 0.00
consisting of its smartphone sales in China, which jumped 77%
to $998 million, though that was only 11% of total revenue.
6. Europe Middle East and Africa segment reported $6.8 billion
0.07 3 0.21 1 0.07
USD in sales but only $24 million in operating profits in 2013.
7. Sales in North America were $4,939 million in 2013, lower than
0.06 2 0.12 4 0.24
any market served.
8. Inventory Turnover of 20 with Apple over 70. 0.04 2 0.08 3 0.12
9. Despite improving profits, the firm’s net income in 2013 was only
0.05 2 0.10 3 0.15
$631 million.
10. Despite improving profits, the firm’s net income in 2013 was only 0.00 0 0.00 0 0.00
$631 million.
TOTALS 4.79 3.81

Both strategies should be implemented and even though building the new production plant in
China receives a higher score than securing relationships with Verizon and AT&T in the USA, it
would be wise for Lenovo to first gain a commitment for the USA based telecom giants.

Recommendations

1. Build a new production plant for phones and tablets near the R&D facility in Wuhan, China
for $600 million.
2. Form an alliance with Verizon and AT&T in the USA to provide smartphones.
3. Offer the equivalent of $20 off each phone for up to 1 million customers in Russia.

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4. Devote $200 million to building relationships with large multinational companies around the
world to supply their employees with smart phones.
5. Spend $20 million to restructure by product and hire a COO.
6. Invest 80% of all profits generated from PCs into R&D for tablets, smart phones, and next
generation devices.
7. Spend $50 million to develop and offer cheaper products for customers in emerging markets.
8. Spend $150 million in advertising in China to market the advantages of Lenovo smartphones
over rival XTE Corp.
9. Further increase the vertically integrated strategy to include batteries, display, and storage for
$500 million in R&D.
10. Divest all software operations similar to what Microsoft is offering for free.

EPS/EBIT Analysis (in millions of $ expect for EPS and Share Price)

Amount Needed: $1,700 million

Stock Price: $21.11
Shares Outstanding: 518
Interest Rate: 4%
Tax Rate: 25%

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $500 $800 $1,200 $500 $800 $1,200
Interest 0 0 0 68 68 68
EBT 500 800 1,200 432 732 1,132
Taxes 125 200 300 108 183 283
EAT 375 600 900 324 549 849
# Shares 599 599 599 518 518 518
EPS 0.63 1.00 1.50 0.63 1.06 1.64

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 60 Percent Stock 40 Percent Stock
Recession Normal Boom Recession Normal Boom
EBIT $500 $800 $1,200 $500 $800 $1,200
Interest 27 27 27 41 41 41
EBT 473 773 1,173 459 759 1,159
Taxes 118 193 293 115 190 290
EAT 355 580 880 344 569 869
# Shares 566 566 566 550 550 550
EPS 0.63 1.02 1.55 0.63 1.03 1.58

As economic conditions improve, debt financing becomes more and more attractive for Lenovo.
It would require increasing shares outstanding by 16% if financing by equity under any
economic climate.

Conclusion

In January 2013, Lenovo opened its first USA-based PC production facility in Whitsett, North
Carolina. The 240,000 square feet facility is 10 miles outside of Greensboro and produces many
of the new Think-branded PCs such as the tiny ThinkCentre M92p desktop, ThinkPad Tablet 2,
and ThinkPad Helix convertible Ultrabook. To celebrate opening the PC manufacturing line,
Lenovo donated 36 ThinkCentre Desktops made in Whitsett to the Greensboro YMCA to be
used for youth development and education programs. The big problem for Lenovo, however, is
that the research firm EDC in mid-2013 predicted that worldwide shipments of PCs will decline
7.8 percent in 2013 and an additional 1.2 percent in 2014 because smartphones and tablets are all
the “computer” that most people need. Global shipments of laptops and desktops fell 14 percent
in Q1 of 2013. But Lenovo’s global market share in the PC industry grew to 15.3 percent in
mid-2013 while market leader HP saw its market share drop from 17.7 percent to 15.7. Some
analysts such as Gartner Inc. say that Lenovo has 15.7 percent to HP’s 15.5 percent making
Lenovo the world’s largest PC maker.

Although Lenovo is arguably the world’s largest seller of PC’s, the PC industry is in decline, so
CEO Yang Yuanqing in mid-2013 told the world that for Lenovo “smartphones are our new
opportunity.” However, breaking into the Apple –Samsung duopoly in smartphones is to be a

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difficult task. Lenovo recently opened a new $800 million R&D facility to develop smartphones
and tablets in the central Chinese city of Wuhan. CEO Yuanqing calls the new Lenovo strategy
“protect and attack.” Lenovo predicts that its worldwide sales of smartphones will increase from
30 million units in fiscal 2013 that ended 3-31-13 to 50 million in fiscal 2014 to end on 3-31-14.
Lenovo’s primary marketing spokesperson for the company’s new K900 smartphone is NBA
superstar Kobe Bryant. But in the USA, Lenovo faces an uphill battle, since in 2012 alone,
Apple and Samsung spend $333 million and $401 million respectively on advertising their
smartphones in the USA.

Lenovo’s CEO Yuanqing recently said that “servers and storage is the business we want to
expand and develop.” Rumors are that the CEO is engaged in talks with IBM to purchase some
of their server business.

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