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 user 2006-11-21 at 11:47:00 am Views: 103
  • #16903

    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.”