Mark my words: Lenovo Group Limited (NASDAQOTH: LNVGY), the little PC maker that could, is redefining how personal computer businesses should be run.
The Hong Kong-based company has the numbers and facts to support this grand claim:
- 13 consecutive quarters of sales growth.
- 15 consecutive quarters of outperforming the PC industry.
- Sales growth across all major geographic regions.
- Produces tablets and smartphones that consumers actually want.
A Little Background
Since its founding in 1984, Lenovo has risen to become the largest PC maker in the world (in shipments volume), with a market presence in over 160 countries. It also has the second largest market share in the industry, barely trailing Hewlett-Packard.
Lenovo became a major player in 2005, when it purchased IBM’s personal computer business segment for $1.25 billion. In addition to its personal computers, it also manufactures servers, workstations, tablets and smartphones.
Fundamentals First
When we first compare Lenovo to Hewlett-Packard Company (NYSE:HPQ) and Dell using traditional value metrics, the stock doesn’t stick out much.
| Company | Forward P/E | PEG Ratio | P/S Ratio | Profit Margin | Debt-to-Equity | Return on Equity |
| Hewlett Packard | 4.72 | N/A | 0.27 | -10.51% | 124.54 | -40.91% |
| Dell | 7.98 | 0.89 | 0.39 | 4.44% | 88.68 | 27.63% |
| Lenovo | 17.69 | 1.49 | 0.35 | 2.23% | 13.55 | 22.36% |
Hewlett Packard | Dell | Hewlett Packard | Dell | Lenovo | Dell |
Source: Yahoo! Finance
However, from this table we immediately see that Lenovo has a distinct advantage over the two market leaders – a very low debt-to-equity ratio. That gives Lenovo the ability to spend more on research & development, investments, and expansion.
But where Lenovo shines is the next comparison, which charts the three companies’ revenue, net income, and PC shipments growth in 2012.
| Company (Most Recent Quarter) | Revenue | Y-O-Y Revenue Growth | Net Income | Y-O-Y Net Income Growth | Cash Reserves | PC Shipments Growth (2012) | Global Market Share |
| Hewlett Packard | $30 billion | -7% | -$6.9 billion | N/A | $11.3 billion | -0.6% | 16.7% |
| Dell | $13.7 billion. | -11.7% | $475 million | -47% | $11.3 billion | -20.8% | 10.6% |
| Lenovo | $9.4 billion | +12% | $205 Million | +34% | $4.2 billion | +8.2% | 15.7% |
Hewlett Packard | Lenovo | Dell | Lenovo | HP/Dell | Lenovo | Hewlett Packard |
Source: IDC, Yahoo! Finance, Lenovo 4Q 2012 Release
Lenovo shines in all major growth categories, growing at a rapid clip throughout all of 2012, while Hewlett Packard and Dell have been in freefall.
It’s not so easy to blame Apple and Google anymore…
Lenovo’s success is even more incredible when you compare its 8.2% growth in PC shipments to the industry decline of 7.8%. Of the top five PC manufacturers in the world – Lenovo, HP, Dell, Acer, and Asus – only Lenovo and Asus posted positive growth for the year.
This casts doubt on the constant excuse HP and Dell have been using for their poor growth – Apple Inc. (NASDAQ:AAPL). While Apple’s seminal iPhone and iPad indeed disrupted the ‘Wintel’ market, the smaller Asian competitors (Acer and Asus are based in Taiwan) have thrived.
In my opinion, this is encouraging news for Microsoft Corporation (NASDAQ:MSFT) shareholders. Despite poor earnings from Hewlett Packard and Dell, Microsoft’s Windows division posted adjusted net profit growth of 14% on 11% adjusted revenue growth since the release of Windows 8 in late October. This means maybe consumers don’t really hate Windows 8 – they just aren’t attracted to HP or Dell’s products.
Therefore, instead of producing the polarizing Surface, boosting its efforts with Nokia, or considering a buyout of Dell, shouldn’t Microsoft be forging stronger ties with Lenovo, which already has a loyal customer base of tablet and smartphone customers?
In other words, isn’t it a better use of Microsoft’s time and money to attach its name to a rising star rather than some has-beens?
