One slips on so-so earnings – only $7bn in quarterly profits. The other jumps 3 per cent on a deal that will hurt its bottom line. It isn’t hard to see that the latter, Lenovo, has more market momentum than Samsung Electronics. Both make consumer electronics and tech hardware, from Lenovo’s new server business to Samsung’s chips. Might Lenovo become the next Samsung?
On a size basis, the comparison is still a bit ridiculous. Samsung’s market capitalisation is $160bn; Lenovo’s, $14bn. Samsung’s profits last quarter were 10 times Lenovo’s for the past year. Still, Lenovo’s deal this week to buy IBM’s X86 server business demonstrates that it still has the ambition it showed when it bought Big Blue’s PC business in 2004.
The relatively low price paid – half of sales – reflects the IBM unit’s swing into loss last year. The business will knock about 5 per cent off Lenovo’s full-year earnings per share, including the slight dilution from the shares issued to IBM. The shares’ rise suggests that investors think it can use its lower cost structure to lift profits.