Lenovo Group Limited (HKG:0992) Grows Computer Business Globally; Has Highest Margins in China

June 24, 2013

Lenovo Group Limited (HKG:0992) has become the number two notebook PC manufacturer in the world after the acquisition of IBM’s notebook business in 2005, and the company has sales in North America, Europe, Latin America and the Asia Pacific region, especially in China, where the technology company has its highest margins due to room for expansion and for increased penetration, says Edmund Harriss, Investment Director and Fund Manager at Guinness Atkinson Asset Management.

“In the U.S., however, they are also gaining considerable traction. They place a lot of importance on attaining market share of around 10% or so, because at that point, that’s where they see economies of scale kicking in. In the U.S., they have just about achieved it. And we have seen margins improve pretty significantly as a result of that. Their smartphone business is the new higher growth area, they are focusing very much more on China at the present. But that is a big growth area in China as consumers are finding that smartphones are affordable,” Harriss said.

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Harriss says Lenovo is one one of his favorite stocks, having been a very strong performer, a very strong executor of product development and geographic expansion, as well as generating significant amounts of cash flow.

“So Lenovo is one of our top picks. It has recently performed extremely well, and when I say performed extremely well, its operations have performed extremely well across product lines and across geographies. So this is a company that is managing its business very well by seeking to protect the markets where it is generating the most cash flow and using those cash flows to attack new markets where they are pushing to gain market share,” Harriss said.