Lenovo Details Low-price Emerging Market Strategy

Lenovo CEO Yang Yuanqing detailed his firm's strategy to break into rising economies with low-price products before moving its focus to mature markets, at a press event Thursday.

Yang's remarks came one week after Lenovo said it would restructure its product groups into high- and low-end lines mainly targeting mature and emerging markets, respectively.

Lenovo will take a long-term approach to profits as it tries to open up emerging markets with products from its Idea line, Yang said.

"In the short term we are pursuing higher market share rather than profits," Yang said.

Lenovo may also wait for the economic crisis to pass before returning its focus to mature markets, Yang said. Lenovo lost $97 million in the last quarter of 2008 after demand went off a cliff in the U.S. and Europe. It has since announced nearly 3,000 layoffs and two reorganizations to cut costs and draw back from developed markets.

Lenovo's ThinkPad notebooks remain competitive at the high end, but the line has suffered recently from high fixed costs and tough competition from established PC makers, Yang said. The firm acquired the ThinkPad brand when it bought the PC unit of IBM Corp. in 2005.

Lenovo will look to rebuild the success of ThinkPad notebooks as its mature and emerging market product lines separate, said Yang.

"If the market situation does not deteriorate further, we are confident that we can quickly place this operation back on the track to profits once this restructuring is finished," he said.

Lenovo will also begin pushing its entry-level products in mature markets, said Milko Van Duijl, the firm's head for Europe, the Middle East and Africa.

The firm will gradually expand its offerings in mature markets and move into more of them, Duijl said.

"We will enter the low-end price cells and we will add our netbooks and lower-end price-cell models," Duijl said. "Next we will add ultra-portable segments."

Yang promised "exciting" new products later this year. Lenovo will release 50 new PC models in its next fiscal year, including 24 desktop PC models and more than 20 notebook models, it said in a statement distributed at the event. Also included are the firm's new ultra-portable IdeaPad Y-series notebooks and its IdeaCentre A600, a slim all-in-one desktop.

Lenovo may perform well in emerging markets, but the entry-level products it sells will bring low profit margins, said an analyst at UOB Kay Hian, a brokerage.

Building a presence for those products in mature markets will also take time, the analyst said. The firm will need to expand its product development to catch up with bigger PC makers like Dell and Hewlett-Packard in developed markets.

"Unless the whole industry resumes growth by 2010, it might be difficult for Lenovo," the analyst said.

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