The PC maker is cutting staff and reshuffling management, according to local press reports. Lenovo never really delivered on the supposedly potent cocktail of a world-renowned brand (IBM) and cheap cost base – not least because you do not need to be Chinese to make computers there. Indeed, Lenovo fares poorly among its peer group. Credit Suisse estimates this year's operating profit margins will clock in at just 1.7 per cent compared with 2.5 per cent for Taiwan's Acer and 5.8 per cent for Dell.
Lenovo's chief advantages are its $1.5bn of net cash, or almost 60 per cent of market capitalisation, and a strong position in China, where it claims a 29 per cent market share. That matters given second-quarter trends, where sales fell on a sequential basis in every other part of the globe and only greater China and the Americas were profitable. But neither advantage is forever. Losses would eat into the cash pile while the likes of Dell, which tends to be more nimble on pricing, provide ever fiercer competition in China. Radical restructuring, meanwhile, is tricky for political reasons. Reports of 200 redundancies in Beijing hardly transforms a company with 24,000 employees. On nearly 15 times this year's earnings, Lenovo trades at a fat premium to its peers – a gap which early accounts of restructuring fail to justify.
