Lenovo Case Study

December 15

2013Prashant Panhale, Bhanu Bhatnagar & Arun Khedwal

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Contents

Sr. No. Index Page No.

1. Executive Summary 2-4

2. Definitions

5-6

3. Global Market Summary 7-8

4. Local Market Summary 9 -11

5. About Lenovo 12 -13

6. Financial Analysis 14

7. Marketing Strategy 15

8. S.W.O.T Analysis- Lenovo India 16

9. Lenovo Smartphones in India 17

10. Lenovo Tablets in India 18

11. Conclusion 19

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Executive Summary

- Worldwide combined shipments of devices (PCs, tablets and mobile

phones) are projected to reach 2.32 billion units in 2013, a 4.5%

increase from 2012, according to Gartner, Inc.

- By the end of this year, 6% of the global population will own a tablet,

20% will own PCs, and 22% will own smartphones.

- On average, there will be two smartphones for every nine people on

earth, or 1.4 billion smartphones, by the end of 2013.

- Tablets are showing faster adoption rates than smartphones. It took

smartphones nearly four years to reach 6% penetration from when

the devices first started to register on a global level. Tablets

accomplished this in just two years.

- Indian tablet market size rose 107.4 % year-on-year and 27.2 %

quarter-on-quarter.

- Tablet PC market in India is set to cross $2 bn by 2013.

- The market is being driven by a shift to lower-priced devices in

nearly all device categories.

Drivers

- Low entry barriers

- Increasing popularity of initiative social networking sites

- Growing use of smartphones and tablets for playing games,

growing in-app purchases for free games

- Low cost data Plan and growing potential in emerging markets.

- This growth is largely fueled by the need of security on smartphones

due to increase in constant connectivity and demand for high

bandwidth applications

- Decreasing device and data costs.

Challenges

- Convincing consumers they need to upgrade their smartphones or

tablets in every two year.

- Price-sensitive consumer. Exchange rate fluctuations.

- High excise & Import duty

Driver

Market

Challenges

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- Competing to build superior products based on the same information

- The premium class of tablets & smartphones is generating the

majority of revenue in the global tablet & smartphone market.

- IDC also predicts Android will continue to be the dominant

smartphone & tablet market.

- IDC: 87% Of Connected Devices Sales By 2017 Will Be Tablets

And Smartphones

- The trend of customers upgrading existing mobile handsets to

smartphones and acquiring tablets, along with other mobile internet

services, such as dongles and data cards, has provided new growth

opportunities for the mobile communications sector.

- Samsung and Apple dominated the worldwide smartphone & tablet

market

- In operating system Android hold a 61 per cent market share

followed by Apple’s iOS, which have 25 per cent other platforms,

such as Windows and RIM’s Blackberry OS, are in single figures.

Smartphone Penetration

Trends

Competition

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Tablet ownership, 2013 compared to 2012

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Definitions

Cloud storage: - Internet-based data storage capacity which can be purchased or is

available free of charge; usually available on an as-needed basis and generally

expandable as more storage capacity is required.

Data usage: - Data usage includes all data transferred via uploads and downloads

from a smartphone or tablet. This data may be transferred through one of a number

of connections that the smartphone or tablet can utilise, including a WiFi connection

or a mobile network connection supplied by a mobile network provider such as

Vodafone, Airtel, Loop, BSNL, MTNL etc.

Mobile networks: Mobile networks are wireless networks which are used for

communications and are capable of transmitting data over significant distances. In

India, mobile networks are owned and operated by Vodafone, Airtel and Loop. Data

speeds over mobile networks can vary and may be defined as 2G, 3G or 4G (To be

launched).

2G: Second generation mobile network (analog being the first) and first

generation digital mobile network which allows download speeds roughly

comparable with dial-up internet access. Users outside the range of 3G and

4G networks, but still with mobile coverage, will generally be able to transfer

data at 2G speeds.

3G: Third generation mobile network which facilitates data transfer speeds

faster than speeds over a 2G network. Data transfer speed over 3G networks

in good coverage areas is roughly equivalent to speed over a fixed ADSL

connection.

4G: Fourth generation mobile network which facilitates data transfer speeds

faster than 3G and 2G networks. Data transfer speed over 4G networks in

good coverage areas is faster than speeds over a fixed ADSL connection and

may be as fast as some cable internet connections. 4G coverage in India is to

be launched, but it is expected providers will greatly expand coverage in the

coming years.

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Mobile apps: Mobile apps (short for applications) are software-based tools which

can be downloaded and installed on a smartphone or tablet to enhance the device’s

functionality. A piece of software that allows a user to view their banking information

on a smartphone or tablet is an example of a mobile app.

Operating system: The software that supports a computer’s basic functions such as

scheduling tasks, executing applications, receiving input from the user and

controlling the display. In India, the two most common operating systems for

smartphones and tablets are:

iOS: proprietary software used by Apple devices such as the iPhone and iPad. iOS

content is limited to content directly supported by Apple.

Android: an open-source platform that is used by a variety of smartphone devices,

including some of those manufactured by HTC, Motorola and Samsung.

Other operating systems available include:

Windows, including the newly released Windows 8: Microsoft’s latest operating

system, Windows 8, is now the primary operating system of Nokia smartphones and

Microsoft’s Surface tablet.

Blackberry OS: operating system of the Blackberry smartphone.

Symbian: Until 2011, Symbian was the operating system of Nokia smartphones,

which have since migrated to Windows 8 as their primary operating system. It is still

used as the operating system for some older model Nokia smartphones.

Smartphone: A smartphone is a mobile phone built on a mobile operating system,

with more advanced computing capability and connectivity. In particular,

smartphones are often characterised by the ease with which they can access

information online and their ability to have their functionality expanded through

custom-designed apps. Examples of smartphones include Apple iPhones, Android

phones, such as HTC Desire and Samsung Galaxy, Windows mobile phones, such

as the Nokia Lumia series and HTC Mozart, and Blackberries.

Tablet: A handheld, internet-enabled, wireless personal computer usually having a

touchscreen or a digital pen-enabled interface, and no hardware keyboard. Tablets

may have WiFi-only or WiFi connection plus mobile internet connectivity. Most non-

iOS tablets can also connect to the internet through a USB port.

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Global Market Summary of Smartphone and Tablet

The smartphone and tablet technology marketplace is now global, with devices

typically launched simultaneously across multiple countries, accompanied by

worldwide marketing and, for high profile brands, multimedia events. As still makes

up a relatively small portion of the smartphone and tablet market, it does not have a

significant impact on global trends. Rather, global developments and trends may

have a strong bearing on developments and trends seen here, with pre-purchase

reviews easily accessible online, apps transcending international borders keep pace

with the latest global trends. With the power of super charged processor, open

platforms, consumer can now multitask & experience the wonder of mobile

applications like never before. This section examines the latest global trends and

developments to provide context for patterns observed in the marketplace for the

supply of smartphones and tablets.

There are 6.8 billion mobile subscriptions worldwide.(Year 2013) Over half of

the world’s mobile subscribers are in Asia Pacific

The top 12 countries account for more than 56%of the world’s total mobile

subscriptions.

29 % of the world’s mobile users live in India and China.

Gartner (February 2013): 1.746 billion handsets were sold in 2012, down 1.7

% from 2011. (These figures include feature phones & Smartphone sales).

Gartner (February 2013): predicts mobile device sales will grow to reach 1.9

billion units in 2013. Smartphone sales are expected to hit 1 billion units in

2013, which means that for the first time smartphones will outsell feature

phones. The star performer is Samsung, which accounted for more than 20-

24 % of all handsets sold in 2012 and more than 30 % of smartphones.

By the end of 2013, global smartphone penetration will have exploded from

5% of the global population in 2009, to 22%. That's an increase of nearly 1.3

billion smartphones in four years.

On average, there will be two smartphones for every nine people on earth, or

1.4 billion smartphones, by the end of 2013.

According to IDC, Android holds 79.3% share in global smartphone market.

Apple's iOS is second with 13.2% while Windows Phone is third with 3.7%

share.

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Globally today smart phones contribution stands at 27% of handsets sales,

going as high as 63 % & 51 % in the developed telecom markets of North

America & European Union respectively.

It has led consumers to use their handsets in ways reaching far beyond the

rudiments of basic mobiles phones.

It’s no surprise that the adoption of smartphones & tablets worldwide has

grown vertically in the short spans of last 2 years.

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Local Market Summary of Smartphone and Tablet

Smartphone category in India is still very nascent at 8-10 %.Smartphone use is

booming in India and is quickly becoming the dominant way many of the country’s

900 million mobile phone users stay connected. Looking at recent trends, the country

may have as many as 40 million of these devices in use by early this year. The

dramatic growth is being driven by a desire among users to stay connected and have

instant access to social networking sites – a global trend that represents an

exponential growth opportunity in developing countries like India.

Indian Tablet PC market will cross $2 billion of revenue by the end of 2013. The

growth is lead by increased use of tablets in education and enterprise sectors.

62% of recent smartphone buyers chose Android

More than one in 10 smartphone owners intended to purchase a tablet

Among users who paid for apps, 58% purchased games making it the most

popular category

According to MAIT, the apex body representing India's training and R&D services

sectors, IT hardware industry, tablet sales in 2012-13 were at 1.9 million units as

against 0.36 million units in 2011-12 witnessing a massive growth of 427 per cent.

CyberMedia Research (CMR) stated that the Indian tablet market increased 107.4

per cent year-on-year to 1,150,000 tablets in the second quarter of 2013. Global

research firm IDC stated that the overall tablet market in India has crossed 2.66

million units and will reach 6 million units in 2013. A recent IDC report stated that

tablet sales will surpass PCs in Q4 of 2013 and will surpass total PC shipments on

an annual basis by 2015 year end.

According to IDC, Google's mobile operating system has a 91% market share in the

country, giving it an overwhelming lead over its competitors. The second most used

mobile OS in the country is Windows Phone, which has a market share of 5.4%. The

figures from IDC, which tracks units of phones shipped in a market, are for the

second quarter of this year. Apple’s iOS, which powers iPhones, has a market share

of just 2.3%.

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About Lenovo

Lenovo Group Limited is a US $ 34 billion company into personal technology,

company serving customers in more than 160 countries. It is largest personal

computer vendor in the world, having recently surpassed Dell & HP. Formed by

Lenovo Groups acquisition of IBM’s personal computer business in 2005. Lenovo's

acquisition of IBM's personal computer division accelerated access to foreign

markets while improving both its branding and technology. Lenovo paid US$1.25

billion for IBM's computer business and assumed an additional US$500 million of

IBM's debt. A global Fortune 500 company.

Lenovo’s business is built on product innovation, highly efficient global supply chain

& strong strategic executions.

Its product line includes Legendary Think-branded commercials PC’s era & Idea -

branded consumer PC’s, as well as servers, workstations, and a family of mobile

internet devices, including tablets & smartphones.

Lenovo has major research centres in Yamato, Japan; Beijing, China; & Raleigh,

North Carolina.

Approximately 35,000 employees worldwide.

Lenovo continued to drive its unique hybrid manufacturing strategy & invest in

vertical integration. Currently the manufacturing facility at Beijing, Shanghai,

Chengdu, Hefei, Huiyang & Shenzhen, China; Pondicherry, India; Monterrey,

Mexico; Itu, Brazil; as well as Whitsitt, North Carolina in the USA., with contract

manufacturing & Original Design Manufacturing Locations worldwide.

In 2012, Lenovo made a major effort to expand its market share in developing

economies such as Brazil and India through acquisitions and increased budgets for

marketing and advertising. While Lenovo has not revealed its total spending on

marketing, it did increase marketing and advertising expenditures by $248 million in

the fiscal year ending in 2012.

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Lenovo – China In China, Lenovo has a vast distribution network designed to make sure that there is

at least one shop selling Lenovo computers within 50 kilometres of nearly all

consumers. Lenovo has also developed close relationships with its Chinese

distributors, who are granted exclusive territories and only carry Lenovo products

Lenovo previously benefited from the Chinese government’s rural subsidy, part of a

wider economic stimulus initiative, designed to increase purchases of appliances and

electronics. That program of subsidies, which Lenovo joined in 2004, ended in 2011.

Lenovo enjoys consistent price premiums over its traditional competitors in rural

markets and a stronger local sales and service presence.

Lenovo – India

Lenovo has gained significant market share in India through bulk orders to large

companies and government agencies. For example, the government of Tamil

Nadu ordered a million laptops from Lenovo in 2012 and single-handedly made the

firm a market leader. Lenovo distributes most of the personal computers it sells in

India through five national distributors such as Ingram Micro and Redington.

Given that most smartphones and tablets are sold to individuals Lenovo is pursuing

a different strategy making use of many small state-centric distributors. Amar Babu,

Lenovo's managing director for India, said, "To reach out to small towns and the

hinterland, we have tied up with 40 regional distributors. We want our regional

distributors to be exclusive to us. We will, in turn, ensure they have exclusive rights

to distribute Lenovo products in their catchment area." As of 2013, Lenovo had

about 6,000 retailers selling smartphones and tablets in India. In February 2013,

Lenovo established a relationship with Reliance Communications to sell

smartphones. The smartphones carried by Reliance have dual-SIM capability and

support both GSM and CDMA. Babu claims that the relative under-penetration of

smartphones in India represents an opportunity for Lenovo.

In India, where Lenovo is relatively unknown, Lenovo grants distributors exclusive

territories, but allows them to sell computers from other companies. Lenovo uses its

close relationships with distributors to gain market intelligence and speed up product

development.

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Lenovo Financials

Year over year, Lenovo Group Limited has been able to grow revenues from $29.6B

USD to $33.9B USD. Most impressively, the company has been able to reduce the

percentage of sales devoted to cost of goods sold from 88.35% to 87.97%. This was

a driver that led to a bottom line growth from $473.0M USD to $635.1M USD

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Marketing Strategy

Lenovo Group, the Chinese computer maker which has rapidly gained market share

over the last three years on the back of a string of acquisitions around the world, is

now aggressively eyeing the emerging markets, including India. The company is on

track to become the world's largest PC maker, trailing market leader HP by a slim

margin, according to research group IDC.

The “Protect & Attack” strategy is a key to Lenovo’s success, the right strategy for

PC Plus world. It is driving record market share, improve profitability & a more

balanced business for Lenovo.

Source: Lenovo Annual report

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SWOT Analysis

Lenovo has consistently improved its position both in global capabilities and in

market understanding during the past several years, and its market share growth has

reflected these improvements. It continues to provide well-designed products at very

competitive prices. Lenovo is becoming a stronger option for organizations requiring

global PC deployments, and is a strong viable supplier for all business notebook and

desktop requirements.

Strengths

The Lenovo goods and services have good quality

The brand recognition and traditional reputation of Lenovo are very good

Expanding global markets strategy of the marketing

The diversification of products

Owns very convenient and beautiful images

Good public relationship and sponsorship

Weaknesses

Single marketing channel, the products and services are mainly sold by

monopolized stores

Large number of product lines lie in the expansion of overseas

Product styles are too fewer to choose

Marketing sources are not rich

Prices are not cheap

Opportunities

Takeover Lenovo to become the largest computer seller

Specialty business computer industry takes larger market in the world

European countries‟ market exploration, such as England, France, Italy,

Germany, and so on

Division of products

Threats

There are too many cheap products appearing in the world

Competition from other shoppers embedding on form factors more pleasing to

the consumer

The market protect in some countries is strong

Foreign exchange rate fluctuations

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Lenovo Smartphones in India

Lenovo smartphones are priced between Rs 4,999-Rs 28,999 and have Android operating system in four different series A, S, P & K.

K Series- Premium, Ultra-Slim Smartphones: State-of-the-art smartphones featuring the latest processor, display, and camera technology.

S Series Elite Entertainment Smartphones: Sleek smartphones designed for video, music, and gaming with powerful processors, high resolution displays, and studio-class audio.

P Series Professional Smartphones with Epic Battery Life: Extra-long battery life, IPS displays, and powerful processing will keep you connected on the road and in the office.

A Series Action series smartphones for the young Doers: Entry level smartphones with extensive feature sets offering a great experience at a low price.

Source: Google Images

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Lenovo Tablets in India

Lenovo Tablets are priced between Rs 6,999-Rs 39,990 and have Android operating system in four different series A, S, Lynx & Yoga.

Tablets with Calling Facility

Tablets without Calling Facility

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Conclusion

From the strategic marketing theory and applied research, we can see that the

marketing strategy of the Lenovo competition is not watching competitors, and only

targeting to market shares, but the Lenovo must choose the correct target markets

and market positioning, This position must be conducive to the long-term competitive

edge in the market building, and the development of marketing strategies must

support the market, help enterprises in voluminous and complex competition in the

market environment find a way out for the development of enterprises. Obviously,

the strategic marketing is the only way for facing with the new changes in the market

economy and Lenovo does those and its marketing strategy and operations are

market-orientated.

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