Lenovo Targets Dell Share of Government, Education Sales

Lenovo Group Ltd. (992), the world’s second-biggest maker of personal computers, is targeting Dell Inc. (DELL)’s share of sales to U.S. schools and governments to keep growing after boosting its North American corporate business.

Lenovo can achieve “hyper-growth” of more than 20 percent a year in computer sales to elementary and secondary schools as well as local, state and federal government agencies, Thomas Looney, vice president and general manager for Lenovo North America, said in an interview at his office in Morrisville, North Carolina.

The company closed the gap to almost pull even with market leader Hewlett-Packard Co. (HPQ) in global shipments in the second quarter, while Dell dropped to fourth from third a year earlier, researcher Gartner Inc. said last month. Lenovo’s thrust into the government and education markets, which account for more than a quarter of Dell’s revenue, follows an Aug. 1 announcement that it will resell machines made by EMC Corp., replacing a partnership EMC had with Dell.

“They’re the weakest kid in the playground right now,” Looney, 60, said of Dell in the Aug. 1 interview. “Dell is highly penetrated in K-12, federal, state and local. That’s why I’m attacking now in those segments of the market. I can price very aggressively, and I’ve got the right products.”

Hewlett-Packard’s 14.9 percent share of second-quarter global PC shipments was followed by Lenovo’s 14.7 percent, Acer Inc. (2353)’s 11 percent and Dell’s 10.7 percent, Gartner said. Lenovo, with headquarters in Beijing and Morrisville, increased its shipments from a year earlier by 14.9 percent in the quarter, while Dell’s fell by 11.5 percent.

Public-Sector Sales

Dell has its “strongest-ever portfolio of solutions,” said David Frink, a spokesman for the Round Rock, Texas-based company.

“Lenovo may be putting a lot of its focus on Dell,” Frink said. “Our focus continues to be on our customers and bringing them the best IT solutions to improve their operations and enhance the services they provide.”

Lenovo rose 2 percent to HK$5.99 in Hong Kong trading today, extending the gains this year to 16 percent, compared with a 20 percent drop in Dell’s shares in New York.

Sales to the public sector accounted for about 27 percent of Dell’s revenue in each of the past three years, according to data compiled by Bloomberg.

‘Incremental Threat’

Given the sector’s contribution for Dell, any move by Lenovo to expand sales would put them in closer head-to-head competition and pose “an incremental threat for Dell,” said Brian White, an analyst at Topeka Capital Markets Inc. in New York.

“Lenovo, when they put their mind to things, have done a good job because they have good quality -- and another thing is low prices,” said White. “If Lenovo makes a big push in that area in the U.S., Dell is going to see the pressure.”

Lenovo’s sales of computers to businesses and other large organizations in North America are “humming” after having grown by $1 billion in three years to $2.5 billion, Looney said.

In the education market, Lenovo could more than triple its share to as much as 25 percent from 7 percent now, he said.

One reason is the ThinkPad X130e laptop, designed for elementary- and secondary-school students, which was introduced last year, Looney said. Public schools in New York City have bought “tens of thousands” of the devices, he said.

Tablet for Feds

When Microsoft Corp. (MSFT) releases its Windows 8 operating system later this year, Lenovo will offer a tablet running the system that will target U.S. federal government customers, Looney said. The Mexico-made tablet will be compliant with the Trade Agreements Act, which says products bought under U.S. federal government contracts must be made or “substantially transformed” in a list of designated countries, which doesn’t include China.

Lenovo has a plant in Monterrey, Mexico, that can produce laptop and tablet computers in compliance with that law, Looney said.

“We are now developing products that are specific to segments of the market,” he said. “That really differentiates our products.”

Even with conservative projections for the global PC market, Lenovo’s advantages and “strong management team” are reasons to hold the shares, said Masha Gordon, the London-based head of emerging-market equity portfolio management at Pacific Investment Management Co.

“Those qualities should help the company execute in a tough operating environment,” Gordon said. “We’d expect the company to continue outperforming its peers.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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