Lenovo to Use Acquisition to Help Double Server Share

Lenovo Group Ltd. said it wants to double its share of the market for storage equipment and servers running corporate networks within three years and is open to using an acquisition to achieve that.

The second-biggest maker of personal computers plans to expand its share of the server business to between 5 percent and 10 percent during that time, from 2.6 percent in the fourth quarter, Chief Executive Officer Yang Yuanqing said in an interview today in Chengdu, China.

“Today’s market share is too small,” Yang said. “If we can get a good acquisition, probably we could speed up the process.”

Lenovo diversified into smartphones, tablets and home entertainment to help weather a global slump in demand for PCs. That helped the company report a 90 percent jump in profit in the three months ended March even as global PC shipments fell about 14 percent amid a consumer shift to mobile devices from Apple Inc. and Samsung Electronics Co.

The company last year allied itself with EMC Corp. to boost sales of storage equipment. Talks with International Business Machines Corp. for Lenovo to buy parts of the Armonk, New York-based company’s server division broke down after the two sides couldn’t agree on a price, a person familiar with the discussions said May 3.

IBM Talks

Yang, who is attending the Fortune Global Forum, declined to comment on whether the company held talks with IBM.

Lenovo, with headquarters in Beijing and Morrisville, North Carolina, fell 0.8 percent to HK$7.69 at 1:19 p.m. in Hong Kong trading. The stock has climbed 9.5 percent this year, while the benchmark Hang Seng Index has declined 4.8 percent.

Lenovo was the only one of the top five PC vendors to avoid a decline in shipments in the first quarter, boosting its share of the global market to 15.3 percent in the period from 13.2 percent a year earlier, researcher International Data Corp. reported in April. Lenovo narrowed the gap with market leader Hewlett-Packard Co., which saw its share fall to 15.7 percent from 17.7 percent.

“The PC market is having a tough year,” Ricky Lai, a Hong Kong-based analyst with Guotai Junan International Holdings Ltd., said in a June 5 phone interview. “Smartphones and tablets are going to have robust demand this year, so Lenovo’s strategy is to use this to compensate for the downward trend of PC revenue.”

Smartphone Boost

The company will boost smartphone shipments 72 percent this year to 50 million units, Yang said at the company’s earnings conference last month. Tablet shipments this year will rise to 10 million units from 2.2 million last year, he said then.

Expansion of the mobile devices business may be bolstered by acquisitions, Lai said.

With more than $3 billion in cash reserves, Lenovo is able to pursue an acquisition of almost any size to expand in new business areas, Chief Financial Officer Wong Wai Ming said in a May 23 interview without identifying any targets. The company issued a statement June 4 saying it also was considering a “potential joint venture transaction” in the smartphone business.

Yang is “confident” the company’s handsets can compete in mature markets like the U.S., he said today, without revealing any specific plans.

“We want to win,” Yang said.

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