Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Two ugly acquisitions don't seem to have sated Lenovo Group Inc.'s appetite.

Now the Chinese company is considering purchasing the PC business of Toshiba Corp., pitting itself against Taiwan's Asustek Computer Inc., according to Nikkei. The Japanese company stopped short of denying any spinoff plans, saying that reports of a sale "are not grounded in fact, nor is it in discussion with any individual company."

Just two weeks ago, I argued that Lenovo needs to shift focus away from personal computers. It's in this business mostly out of habit and shouldn't be throwing more money into such an anemic sector without solid signs that the market, or Lenovo's strategy, are about to undergo drastic improvement. 

Even the mere hint that Lenovo may be entertaining another deal should have shareholders worried.

To date, the company has failed to make good on its hefty purchases of Motorola Mobility's smartphone unit and IBM's server business. An investment of 20 billion yen to 31 billion yen ($178 million to $276 million) to take 51 percent of Fujitsu Ltd.'s client computing division, announced earlier this month, will add to the indigestion. Buying Toshiba's computer business would risk turning that into nausea.

Lenovo is very proud of its rising PC market share and crows about it constantly. Those gains over the past six years have been largely organic instead of being juiced by acquiring other brands. At the same time, they didn't result in huge revenue increases, since we're in a declining market.

Bigger Slice
Lenovo's market share has risen substantially over the past five years
Source: Bloomberg Intelligence, IDC
Note: Shows only selected PC brands, doesn't imply global rank

History hasn't been kind to acquisitive PC players. Acer Inc., which went on a buying spree last decade, enjoyed a short-term pop in sales and market share before everything fell apart. In the end, the Taiwanese company wrote off masses of goodwill, which forced it to post a large loss and resulted in a change of management.

Revenue Reality
An increase in share isn't so great for shareholders when the market is shrinking
Source: Bloomberg Intelligence, IDC

Toshiba doesn't add much to Lenovo's lineup. Its PC sales have declined precipitously. The Fujitsu deal as well as a 2011 tie-up with NEC Corp. should be enough for Lenovo to expand its footprint in Japan. Even a bargain price won't make up for all the costs and upheaval that yet another acquisition would entail.

Maybe Lenovo is merely acting as a spoiler to Asustek, helping bid up the price with no intention of buying. Or perhaps the Chinese company wants the deal in order to stop its Taiwanese competitor from getting the boost.

Whatever their intentions, Lenovo management should walk away and get back to handling the problematic acquisitions the company already has on its plate.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net