When a company starts banging on about its mastery of costs, normally it is a sign that sales are flagging. That is not the case with Lenovo. Between April and June, China’s leading PC maker posted the best shipment growth of any of the world’s top-five PC vendors; the fiscal first-quarter numbers, presented in Hong Kong yesterday, showed a top-line jump of 50 per cent year on year.
The company’s big weakness has always been the high cost of those sales. A five-year average gross margin of 13 per cent is not too embarrassingly below Dell’s 18 or Hewlett-Packard’s 24, but expensive salesmen in hard-to-crack markets help put Lenovo’s average operating margins in a different, lesser league: less than 1 per cent, compared with 6 at Dell and 8 at HP. Hence finance chief Wong Mai Wing’s delight at a ratio of operating expenses to sales that, after three falls in the past four quarters, is nearing the range it occupied before 2005, when Lenovo bought IBM’s PC business.
Indeed, investors in the Chinese company might be tempted to start deleting that deal from the archives. While IBM has become the software and services specialist it wanted to be, Lenovo is a long way from the “truly international enterprise” that chairman Liu Chuanzhi envisaged.