Read a Detailed SWOT Analysis of Lenovo for 2019
Lenovo is a leading personal computing brand based in China that has achieved fast growth within a small period. Apart from impressive growth in market share, Lenovo has also seen its revenue growing faster. In FY 2018-19, its net revenue grew above $50 billion for the first time in the company’s history. The company also made some important changes to its business model in 2018. Lenovo made these changes mainly due to the growing competition. The computing industry has undergone major changes in recent years. On the one hand, sales of desktops and laptops have reduced because of the growth of mobile computing.
The growing use of data and analytics on the other has given birth to new customer demands. These changes have led to Lenovo growing its focus upon mobile computing products as well as research and development. The PC market has stabilized a bit in 2018, following years of decline. However, it again started declining in 2019 as per Gartner. Lenovo experienced attractive sales in the latest fiscal year. PC and smart devices generate the largest share of its revenue; more than 71%. The company is also focusing on its other businesses and sources of revenue including its Data center and Mobile business group.
Read more about Lenovo in this SWOT analysis:
- Founded in year 1984
- Lenovo Chairman & CEO: Yang Yuanqing
- Number of Employees: 57,000 approximately.
- Net Revenue 2018/19 – $51 Billion.
- Gross Profit : $7.4 Billion
Large portfolio :-
A large product portfolio is the leading strength of Lenovo. This is also an important source of the brand’s competitive advantage. Instead of depending upon a single source of revenue, the company has continued to expand its product/service portfolio. Lenovo’s business is divided into two main operating segments. Last year, the company reorganized its business and combined the two leading operating segments including PCSD and Mobile Business Group to create the IDG or Intelligent Devices group. Another operating segment of Lenovo is the Data center group.
The large range of products made and sold by Lenovo includes laptops, desktops, tablets, workstations and a large range of accessories. In the smartphone segment, Lenovo has decided to not advance as aggressively. However, it has still introduced a limited range of smartphones in the last few years. The product portfolio of Lenovo includes affordably priced as well as premium products. Its large range of laptops and notebooks has especially gained a lot of publicity in the PC and notebook market. Some of the leading notebook brands from the house of Lenovo include Yoga, Thinkcentre, Idea center and Legion. For the latest fiscal year, the revenue of Lenovo from IDG group (Intelligent Devices Group) grew to $45 billion. The ‘Data Center Group’ on the other hand, achieved record revenue of $6 billion.
Brand Equity :-
Lenovo’s focus upon quality has led to growth in its brand equity. The company has retained strong focus upon product quality as well as use of superior raw materials. Due to these things, the popularity of its products has grown faster. Rising sales also indicate consumer trust and growing brand equity. The personal computing industry has grown hyper-competitive and brand equity is among one of the central factors that affect sales and revenue. The rising sales and revenue of Lenovo in various corners of the world including China and Latin America is also a sign of strong brand equity which reflects strong competitive strength. Otherwise, Lenovo is positioned against very tough rivals including HP, Dell and Apple that enjoy the highest levels of brand equity in the industry. This shows that despite the competition and many more challenges, Lenovo has been able to win customers’ hearts.
Fastest growing PC maker :-
Lenovo is a young company but has been able to grow its share in the PC industry fast. Affordability and product quality are the main reasons that have sent the sales of Lenovo products soaring. Despite being affordably priced, the company’s products are not lacking in quality and some of its products like Thinkcenter, Legion and Yoga are very popular for their design and productivity. Based upon industry data, Lenovo was among the fastest growing PC makers in 2018 -19 with a market share of 23.4%. (Annual Report 2018/19)
Financial performance in fy 2018/19 :-
Lenovo’s financial performance in the latest fiscal year was impressive. The company for the first time crossed the $50 billion mark in its history. Total revenue of Lenovo grew to $51 billion in fy 2018/19 from $45.35 billion in fy 2017/18. It marks a significant turn for Lenovo. In this way, the company has successfully established its position as a leading challenger for HP, Dell and Apple. While the PC market is still full of challenges, the company is benefiting from its continuous focus upon product quality over the last several years.
Lenovo has divided its market into four geographic divisions – China; Asia Pacific; Europe Middle East & Africa; and the Americas. China is Lenovo’s main market which accounted for 25% of the company’s total net revenue in 2018/19. Total revenue from China in fy 2018/19 grew to $12.4 billion from $11.5 billion in 2017/18.
Gross profit of Lenovo also went up in the latest fiscal year rising by 18% to $7.4 billion in 2018/19 from $6.3 billion in the last fiscal year. The Americas are also a major market for Lenovo products. The company generated $16.4 billion in fy 2018/19 from the Americas compared to $14.2 billion in 2017/18 in the last fiscal year. (Lenovo Annual report 2018/19)
Product Quality :-
Another major strength of Lenovo is its focus upon product quality. Not just desktops, notebooks and smartphones, Lenovo’s focus upon quality in other areas is also just as intense. This is also a main reason behind the growing popularity of its products in various parts of the world. Quality management is a core focus at Lenovo and its quality management system is integrated with its business management system. This helps keep quality management at the centre of the business strategy and ensure that the level of product quality is sustained.
Supply chain management :-
Lenovo has maintained intense focus upon supply chain management as well. It has adopted policies and procedures to source only good quality raw materials from its suppliers. The brand sources from thousands of suppliers from all around the world. The suppliers for some of its components are limited. However, the company carefully selects its suppliers. Only the suppliers who show the same commitment to safety and product quality are allowed to be a part of its supply chain. The company also encourages its suppliers to achieve OHSAS 18001 certification through voluntary initiatives (Annual Report 2018/19).
Research and Development :-
Competition in the computing and smartphone industry has grown too high. There are several influential brands which do their best to retain their market share and maintain their strong hold on their customer base. As a result these players invest a lot in marketing as well as research and development. Lenovo has acquired a leading position in the personal computing industry. Its investment in research and development has grown with the growing competition in the industry. The company invested $1.27 billion in fiscal year 2018/19 on research and development. Its investment in R&D in the last fiscal year was around the same as the last.
For Lenovo, market growth would not have been possible without a significant investment in research and development. To grow faster, the company needs to retain its focus upon quality while searching for new areas of growth.
International growth :-
Within its limited lifespan, Lenovo has found impressive international growth. The company sells its products to customers across 160 countries. China is its leading market, but the other geographic regions including the Americas and the Asia Pacific are also major sources of revenue for it. Its popularity in the Latin American region has also grown very fast leading to growth in income and gross profit. The popularity of its computing products and other intelligent devices and data center services is high in various parts of the world. Its entire business is divided into four geographic regions that include China, Asia Pacific, Europe Middle East & Africa as well as the Americas.
Weaknesses : –
Late entrant in key areas :-
While Lenovo has built a leading position for itself in the personal computing market globally, in some important areas, its competitors are far ahead. Lenovo was late to enter the smartphone industry. Mobile computing is growing faster and competition in this area is formidable. However, for the first time in 2018, the company reported profits from its Mobile Business group since it acquired Motorola Mobility. Lenovo is working to bring a strategic shift in its Mobile Business group. It has reduced its expenses for the group and is trying to simplify its mobile business product portfolio. Moreover, to make the Mobile Business Group thrive, it has shifted its focus to the core markets which include Latin America and North America. Overtime, even if Lenovo is able to gain higher market share, the level of competition from leading players like Samsung, Apple and other Chinese brands will continue to make the game challenging. In FY 2018/19, Lenovo’s Mobile Business Group registered US $139 million loss before taxation. However, that’s still a significant improvement from a loss of US $603 million in the previous fiscal year (Lenovo Annual report 2018/19).
PC market decline :-
With the growth of Mobile computing, the PC market has taken a hit. It showed some signs of stabilization in 2018 after years long decline. Again in 2019, the PC market decline began. Moreover, the presence of leading players like Apple, HP, Dell, Acer and others, makes it a hyper-competitive industry. Lenovo has still managed to retain its leading position in the PC industry. However, the game keeps growing all the more challenging as PC brands like Apple, HP and Dell are investing aggressively in research and development. They keep releasing updated models of notebooks and desktops for their customers. In the longer term, Lenovo will need to place higher focus on growing new sources of revenue since the rise of mobile computing has brought a lot of uncertainty to the PC industry.
Lagging in terms of marketing :-
When it comes to marketing and promotions, Lenovo looks less aggressive compared to its strongest rivals. Its marketing strategy is less focused compared to its leading rivals like HP and Apple. Lenovo has a great product strategy and has targeted mainly middle class consumers. However, having a strong marketing strategy reduces the effect of competition on a brand. This is not just Lenovo’s weakness. Other Chinese technology brands too do not perform so well compared to their American counterparts in the area of marketing. Lenovo’s largest source of popularity is its product quality and a competitive pricing strategy. However, stronger branding and marketing will help it gain extra edge and maintain its leadership position in the industry in the longer term.
Cloud technology, AI and other fast growth areas :-
Lenovo’s financial performance is improving fast. Strong cashflow will help the brand explore new sources of revenue and growth. While its performance in its core personal computing business is strong, the brand cannot rely on just one source of income. Apart from its mobile business, it also needs to invest in fast growth areas like 5G, Artificial intelligence, IoT and cloud technology. This will help broaden Lenovo’s product portfolio as well as its customer base. The company can find additional growth by investing in these areas.
Digital marketing and customer engagement :-
Digital marketing is growing faster than ever. It has become the main marketing channel for millions of businesses around the world. While Lenovo is a leader in PC industry, it also needs to engage and retain its customers globally. The company must invest in digital marketing and customer engagement. Apart from online promotions, email marketing, social media and video marketing, the company can use digital channels to engage its customers and manage customer relationships better. All the leading American PC, smartphone and cloud businesses are investing aggressively in digital marketing and customer engagement. Lenovo too can manage competitive pressure better if it tries new digital engagement strategies for its customers.
Lenovo’s acquisition of Motorola Mobility has started earning profits for the brand. In 2018, the company posted profits from its Mobile Business Group for the first time. If acquisitions are successful, they help with market growth and expansion. In the future, Lenovo can acquire more such related businesses to increase its market share and grow its revenue. With a healthy bottom line, the company is poised for faster growth in future. Moreover, acquiring smaller businesses will help Lenovo make its product portfolio more attractive and grow business profitability.
Threats : –
Heavy competition :-
The biggest threat before Lenovo is the level of competition in the personal computing industry. The PCSD group is the largest source of revenue for the company. However, Lenovo is positioned against some of the strongest players like HP, Apple and Dell. These brands invest aggressively in product quality, marketing as well as research and development. To retain its market share, Lenovo also needs to continue investing aggressively in the above mentioned areas. To overcome the competitive pressure, it will have to find new growth channels.
Regulatory pressure :-
Regulatory pressure in the PC industry is one of the other major challenges before PC brands. The personal computing companies are dealing with heavy regulatory pressure throughout the globe. On the one had, this has led to increased compliance related pressures and costs and on the other, it also limits growth prospects. Combined with the other challenges facing the PC industry, the threat before brands like Lenovo is quite big.
Trade wars :-
The US China trade wars are affecting both the Chinese and American brands. The Trump government has raised the tariffs a lot and this is resulting in higher operational costs. Another Chinese brand Huawei received a severe blow. While Lenovo has not faced any significant trouble, the trade wars are still affecting all leading businesses. However, not just Lenovo but its leading rivals like Apple and HP have also felt the effect of the trade war between the two nations. China and US, both are leading markets for computing products and worsening relationships between these nations is hurting computing brands the most.
Economic fluctuations :-
Lenovo is a global business and its profitability is affected by the economic performance of the markets it is operating in globally. As a result, economic changes and currency fluctuations can affect its revenue and profitability. The impact of currency fluctuations on Lenovo’s business in fy 2018/19 was more severe compared to previous fiscal year. The net impact was a loss of $112 million in fy 2018/19 versus a loss of $56 million in the previous fiscal year. (Lenovo Annual report)
Conclusion : –
Lenovo has swiftly risen to the top position in the PC industry. Driven by its focus upon quality, the company has ascended swiftly in the notebook and desktop market. However, another reason behind its growth is its pricing strategy. The company introduced a large range of products for middle class buyers. These affordably priced and good quality products have helped it expand its market base faster. However, the personal computing market is shrinking with the rise of mobile computing. As a result, the brand also needs to focus upon other areas to retain its momentum. Its Mobile Business Group has started bringing positive results. This happened for the first time in the latest fiscal year since the company acquired Motorola mobility. Despite all these things, the smartphone and PC industry both are highly challenging and Lenovo will have to retain its focus upon product quality as well as research and development.
Simultaneously, digital marketing and digital engagement of customers should also be a core focus of the brand for stable performance in a highly unstable and regulated environment. The trade war between America and China is intensifying and this can affect Lenovo in one way or the other. Its revenue has crossed the $50 billion mark for the first time in its history and that’ an accomplishment. However, retaining the momentum will be a challenge given it is positioned against mighty opponents like Apple, HP and Dell. Opportunities are growing in areas including 5G, AI, IoT and cloud computing. Lenovo has a healthy bottom line and it could invest in emerging technologies to find extra competitive strength. Focusing on marketing, branding and customer experience will also help it gain extra edge, which is essential for growth acceleration.