RUMORS..LENOVO’s ACQUISITION OF LEXMARK?

[Anonymous]

Rumoured Lenovo acquisition of Lexmark would make sense
Industry
speculation continues to swirl about PC maker Lenovo Inc., which is
rumoured to be close to making an offer to acquire printer manufacturer
Lexmark Inc.
If
the deal were in fact to go down, IT analysts said it could prove to
have significant impacts on Lenovo rivals Dell and Hewlett-Packard, and
the channel at large.Warren Shiau, associate partner and senior IT
analyst for The Strategic Counsel, said on the face of it, it could
make sense for Lenovo to acquire Lexmark provided Lenovo could buy
Lexmark for a price that makes sense with regards to the savings Lenovo
could get by bringing printer production in-house.”It would also be a
way to make money off a competitor, at least until Dell decided to move
its production elsewhere,” he said. “The shared heritage Lenovo and
Lexmark have might have some points branding wise, but it probably
wouldn’t affect a decision to acquire or not other than that unless
there are some shared processes, suppliers, organizational traits,
etc., from the past that are still lingering.”

According to Martin Kariithi, analyst for Technology Business Research Inc., it seems very likely Lenovo would acquire Lexmark.
“Lenovo’s
printer business is very small coming in at less that 1 percent of
total revenue. Lenovo would like to diversify its revenue stream on
products that are complementary to its PCs and give it a better shot at
market lead HP,” he said. “Furthermore, both companies rely on the
channel which would make it easy to integrate their sales
operations.”Lenovo reported sales of (US) $3.7 billion representing a
1.3 percent growth rate while the company’s net income fell to $38.09
million compared to $45.2 million a year ago.Citing TBR’s latest
quarterly report on Lenovo, Kariithi said the PC maker continues to
dominate its core market in China but it has yet to prove it can
compete effectively on the international market. Despite aggressive
co-marketing and brand promotion activities such as the deal signed
with the National Basketball Association, Lenovo has yet to gain
widespread brand recognition in the U.S. and European markets.”Lenovo
appears to buckling under competitive pressures and is struggling to
keep up with leading PC vendor HP’s resurgence and aggressive SMB
expansion. The company also has to contend with fourth largest global
PC vendor Acer heavily breathing down Lenovo’s neck with the goal of
snatching away the number three spot,” Kariithi said. “This is putting
a strain on Lenovo’s margins forcing the company to price ThinkPad
products at lower price bands.”Thus undermining Dell would be an added
benefit, but Kariithi said Lenovo’s primary target is HP right
now.”Both are channel oriented and Lenovo wants to expand in the SMB
market in a big way and HP has a stronger foothold in this niche right
now,” he said. “The acquisition would increase Lenovo channel
commitment, giving the company more leverage in negotiations with
channel partners.”Lenovo’s inventory management continues to face
difficulties despite the company’s efforts to upgrade its supply chain
management IT system. Lenovo’s distribution efficiency in the former
IBM PC markets still lags behind its core market China. This raises the
company’s cost structure and is hampering profitability in the regions
outside of China, the TBR report stated.

The acquisition rumors have been circulating for a while, noted Michelle Warren, senior IT analyst for Partner Research Corp.
“In
many cases, the marriage between the two companies makes perfect sense.
Both are channel-friendly organizations, and they have complimentary
product lines. They also share the IBM heritage,” she said. “But I
think more important than sharing a heritage are the future
possibilities that this union could potentially produce — including a
great market for Lexmark (building upon the Lenovo presence in China
and increasing its retail presence its brand awareness).”On the subject
of IBM, Kariithi said Lenovo would prefer to move away from Big Blue’s
culture. On the other hand, Lenovo has poached five former Dell
APAC-China executives. That would certainly lend credence to the
speculation that Lenovo is also gunning for Dell, he added.PRC’s Warren
said Lenovo acquiring Lexmark would be a move in line with Lenovo’s
transactional go-to-market strategy, while the supplies side would
speak to its relationship strategy.”In this tightly competitive market,
I wouldn’t be surprised at all to see Lexmark and Lenovo join forces to
increase their brand competitiveness against both HP and Dell,” Warren
added.When asked about the potential acquisition, Barbara Leary,
director, corporate communications, for Lexmark International, said,
“Lexmark does not comment on rumors.”

[Author]

November 21, 2006 at 11:49 AM