Dell could open door to Lenovo

Updated: 2013-02-06 11:40

By Zhang Yuwei in New York (China Daily)

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Chinese PC maker looks to build brand and increase US market share

Now that a long-anticipated deal to put Dell Inc into private hands has been reached, experts expect the US-based PC maker will get breathing room to try to build its business, while rivals, such as Lenovo, gain the opportunity to snare a bigger slice of the market.

Terms of the $24.4 billion deal announced on Tuesday call for Texas-based Dell to be acquired by founder and CEO Michael Dell and Silver Lake Partners, a California private-equity firm that invests solely in the tech industry. Part of the deal's financing will come from a $2 billion loan from Microsoft Corp. The software giant, a longtime partner of Dell, said its loan is meant to support "the long-term success of the entire PC ecosystem".

Dell was most recently ranked the world's No 3 maker of personal computers, after US-based Hewlett-Packard Co and China's Lenovo Group, according to industry researchers Gartner Inc and International Data Corp. In last year's third quarter Lenovo overtook H-P to become the biggest PC maker by shipments, but the two companies have since swapped places. Dell, however, hasn't made much headway in a market where it was once strong.

Michael Dell, who owns 14 percent of the company's shares and will remain chairman and CEO, said the deal "will open an exciting new chapter" for Dell Inc and "deliver immediate value to stockholders".

The deal is subject to review by Dell shareholders.

The new chapter for Dell could provide an opening for competitors such as Lenovo to add market share, said Jay Chou, an analyst for IDC.

Going private comes at a "much-needed time" for Dell, he said.

"It's something that is very hard to integrate, especially when you have made so many acquisitions," Chou said, pointing to Dell's recent history. He expects the company will end up ceding ground in production of PCs for consumers while building up a more profitable business in catering to businesses.

"I think the focus of Dell has been and will continue to be that they aren't really trying to compete as much on the lower-margin side of things. They are much more margin-conscious and enterprise-focused."

Lenovo, said Chou, "will still have its advantage in China and other emerging markets. It knows how to establish and grow channels in lower-tier markets".

The company, which has headquarters in Beijing and North Carolina, has about 9 percent of the North American PC market and lacks the level of brand awareness it enjoys in China, where its market share is almost 37 percent.

"This focus on building the brand and becoming a relevant consumer brand globally is a key to our future growth," Gerry Smith, president of Lenovo North America, told China Daily in a recent interview.

"Ultimately, this is an acknowledgement on Dell's part that they don't want to and cannot compete, and their bread and butter is commodity PCs," IDC's Chou said.

He added that, unlike Lenovo, Dell hasn't made strides in producing digital gadgets such as tablet computers and smartphones.

Its December acquisition of Credant Technologies, a maker of data-protection and encryption software, was the 19th deal by the PC company since 2008.

In four years, Dell spent about $13 billion on buying smaller companies.

Lenovo, which recently announced a quarterly net profit that showed an annual 34 percent increase, issued a statement regarding Dell's deal on Tuesday.

"The financial actions of some of our traditional competitors will not substantially change our outlook," it said. "We are focused on our products, customers and overall execution rather than distracting financial maneuvers and major strategic shifts. This focus is an advantage for us and a benefit to our customers."

Lenovo's strategy of "protect and attack" aims to shield the two huge profit centers - commercial PC sales and the Chinese market - while the company moves into new markets with new products, including smartphones and tablets.

One market the company is "attacking" is service to small- and medium-size business, or SMBs, including in North America.

"We had relatively little share, relatively little presence, so we made a very conscious decision that we're going to invest in this market," Jay Parker, general manager for the company's consumer and SMB operations, said in an earlier interview.

(China Daily 02/06/2013 page1)

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