Lenovo Hopes to Improve Supply Chain

Lenovo Group, heir to IBM’s PC business, plans to change its supply chain to improve the company’s margins in a tightening PC market, executives said Thursday.

Executives warned of a possible price war in the PC market and continued fierce price competition. Lenovo said it has stable growth in shipments to the Americas and Asia, but revenue has declined, a sign of falling unit prices.

“Our expectations for short-term profit growth remain guarded,” said Lenovo Chief Financial Officer Mary Ma in a conference call to discuss the company’s financial performance.

Lenovo’s weakness in the overall desktop market, where growth is slowing, comes from its supply chain and logistics networks, said Chief Executive Officer William Amelio.

Ma said Lenovo will try to increase payment terms with suppliers. Lenovo’s inventory terms are also not yet comparable with the rest of the industry, Ma said.

To boost sales, Lenovo will focus worldwide on the market for small to medium-size businesses. “That’s where the growth is in the market,” Amelio said.

Lenovo is strengthening relationships with partners in areas such as Hong Kong and India as part of its “transaction model,” an approach for delivering products to small-business customers. It also pushed more Lenovo sales representatives into retail outlets, Amelio said.

Lenovo is in the midst of a restructuring plan. It completed its acquisition of IBM’s PC business on April 30 after agreeing in late 2004 to buy the unit for US$1.25 billion. It expects to save costs, primarily from labor cuts, and will return half of those savings to the bottom line, with the rest invested to help increase margins, Lenovo said.

“We are looking for consistent profitability later this year as a result of our restructuring actions,” Ma said.

Lenovo will keep the popular ThinkPad notebook brand that it acquired from IBM for premium products, Amelio said.

By Jeremy Kirk, IDG News Service (London Bureau)

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