Lenovo on the Decline: Consecutive Yearly Losses with Only 0.4% Market Share
Lenovo’s performance in the past two years has been far from satisfactory.
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Lenovo is the first Chinese company to enter the list of Fortune 500 companies. However, Lenovo has recently been going through troubled times. It was first kicked out of the Hang Seng Index (HSI) and then was involved in a 5G voting scandal.
Its financial reports show that Lenovo’s revenue has been in the decline since 2015. Even though the recently released performance report on Q3 of the 2017 – 2018 fiscal year shows that, in the last three months as of December 31, 2017, its quarterly revenue was up 6 percent year on year at $12.94 billion. The revenue of their mobile business continued to fall, however, as it was down 5 percent year on year at $2.076 billion.
Changjiang Times reports that Lenovo sold a total of 22.1 million smartphones units in 2015, while only 1.79 million units in 2017, down more than 90 percent in two years. Meanwhile, Lenovo’s smartphone market share was just 0.4 percent in 2017.
On May 8, Yang Yuanqing, the chairman and CEO of Lenovo, announced the establishment of a brand new “Smart Device Business Group” in the internal letter, putting more emphasis on the smart device business. The reporter tried to contact Lenovo executives numerous times to learn more about the future development strategy of their mobile business but was unsuccessful in soliciting a reply.
Declining revenues two years in a row
Lenovo’s stock price has been falling since the start of 2018, down from around $4.7 Hong Kong dollars in late January to $3.81 HKD on May 18, down about 18.9 percent. On May 4, Hang Seng Indexes announced that from June 4, CSPC Pharmaceutical Group Limited will replace Lenovo as one of the 50 HSI constituent stocks.
Lenovo was kicked out of HIS mainly because its performance and share prices have been falling continuously in recent years, which lead to sharp declines in their market value. As a result, Lenovo is now “unqualified” to be included in the HSI.
Lenovo’s revenue and gross profit both fell in the 2015-2016 fiscal year. According to Lenovo’s financial reports, its revenue was down 3 percent to $44.912 billion, while its gross profit fell 8 percent to $6.624 billion. The decline was mainly due to exchange fluctuations, a slow down in the increase of demand for PC and that Lenovo is revamping its smartphone business.
In the 2016-2017 fiscal year, Lenovo’s revenues fell 4 percent year on year to $43.35 billion, while its gross profit fell 8 percent to $6.06 billion. The decline was mainly due to the business transformation of its smartphone lines and data centers during the fiscal year.
The recently released performance report for Q3 of the 2017-2018 fiscal year shows that its revenue in the last three months as of December 31, 2017 was $12.939 billion, up 6 percent year on year. Its mobile business revenue, however, continued to fall during those three months, and was down 5 percent year on year at $2.076 billion.
Global smartphone sales continue to decline
In April 2002, Lenovo Mobile Communications Technology co., LTD. was established mainly to engage in the R&D, production, sales and service of Lenovo mobile phones. In September 2009, Lenovo ranked the third place in China’s mobile phone market in terms of market share, and was the largest domestic mobile phone manufacturer.
Nowadays, the mobile business has become an obstacle on its way forward, with even worse performance in China. According to the 2015-2016 fiscal year financial reports, the gross revenue of mobile business rose 7 percent from last year, but due to declining sales in China and North America, Lenovo only sold 66 million units of smartphones globally, down 13 percent.
In the 2016-17 fiscal year, the revenue of Lenovo mobile fell another 10 percent to $7.707 billion. Lenovo’s financial reports show that due to business transformations, including brand rebuilding and distribution channel reorganization, Lenovo earned less and sold fewer units of smartphones in China. As a result, its global smartphone sales fell 22 percent as well.
Lenovo smartphones are losing ground in the Chinese market. Data show that Lenovo sold 22.1 million units of phones in 2015 while 417 million units of smartphones were sold in China in the same year. That is to say that Lenovo’s market share was 5.3 percent in 2015.
Just two years later, Lenovo sold only 1.79 million units of smartphone in China in 2017 while 449 million units of smartphones were sold in China that year. This means that Lenovo’s market share fell to a meager 0.4 percent, a drop of over 90 percent within just two years.
Lenovo incessantly changed the brand name of its mobile phones, from the early “Le Phone”, to “VIBE”, to “Music Lemon” and the newly axed “ZUK”.
Future of smart devices is still uncertain
Along with the change of brands and reduced R&D investment, Lenovo has changed its China executives frequently. Since October 2014 when Lenovo spent $2.9 billion in purchasing Motorola, the head of Lenovo mobile business has been changed three times, from Liu Jun, to Chen Xu and to Qiao Jian. Basically, each executive was only in charge for one year.
Some industry insiders believe that the frequent replacement of senior executives has seriously affected Lenovo’s mobile phone business as Lenovo’s mobile strategy changes with it. “Chen Xudong ended the ‘machine sea tactics’ implemented by Liu Jun, and only left the low-end Music Lemon, the mid-end ZUK and the high-end Motorola. When Yang Yuanqing took office and replaced Chen, he axed Lemon and ZUK, and left only one brand – Motorola. So, consumers are not sure what phone Lenovo is promoting.
Recently, Lenovo seems to be working on smart devices. On May 8, 2018, Yang Yuanqing, Lenovo chairman and CEO, announced the establishment of a brand new Smart Device Business Group in the internal letter. The new business group integrates the Lenovo PC and Smart Device Business Group (PCSD) and the Mobile Business Group. Together with the original Data Center Group (DCG), the new group will work on “smart device + cloud” and “infrastructure + cloud”.
Lenovo launched a new full-screen phone called the S5 in March 2018 that apparently uses blockchain technology, but Lenovo did not disclose the blockchain-related functions. The 3GB+32GB version is priced at 999 yuan ($157), 4GB+64GB version at 1199 yuan ($188), and the 4GB+128GB version is at 1499 yuan ($235).
In an interview with Changjiang Times, Zong Ning, a technology columnist, said that Lenovo is weak in growth with poor profits and is lagging behind in high-tech fields. “There may be opportunities for them in smart devices, but the area is not very profitable and the market size is not great. Therefore, I think the focus should be on the mobile phone market. Their mobile business in China should still focus on the mid to low-end market.”