Hail Lenovo: The New King of PCs

Lenovo is the new PC kingLenovo is doing the happy dance. The latest IDC numbers on PC shipments are out and, no surprise, Lenovo beat Hewlett-Packard Co. by a sliver, making it the largest PC manufacturer in the world — at least for the second quarter of 2013.

According to IDC, Lenovo shipped 16.7 percent of the world’s PCs between April and June. Comparatively, HP shipped 16.4 percent and Dell was 11.3 percent. The balance was made up off Asus, Acer and tertiary suppliers and custom white-box builders.

It’s a tremendous achievement for the China-based tech company, which continues to expand its global and Americas presence. However, it’s relatively meaningless in the grand scheme of things.

This isn’t the first time Lenovo has beaten HP in the quarterly shipment game. In the third quarter of 2012, Lenovo edged out HP for the first time in PC shipments. But it was only a momentary win. HP roared back, retaking the PC crown for two consecutive quarters.  The holiday shopping season and launch of Microsoft Windows 8 helped HP, but analysts say cutting margins to razor-thin levels did the trick for HP.

The bigger problem for Lenovo, HP, Dell and other PC manufacturers is the continued decline in PC sales. IDC says PC sales plunged 11.4 percent in the second quarter. Analyst groups forecast total PC sales for 2013 will fall by as much as 8 percent as businesses hold back on buying PCs in favor of extending the life of their existing fleets, embrace “bring your own device” and employee-owned equipment, and shift spending to smartphones, tablets and thin clients.

While Lenovo overtook HP in PC shipments, it’s not entirely through market expansion. IDC says Lenovo saw sales slip, too, but not as much as HP. This means Lenovo’s rise is a combination of its own expansion as much as general market contraction.

When Lenovo bought IBM’s ThinkPad division in 2005, it made becoming the world’s largest PC manufacturer its goal. It had a five-year deal with Big Blue to license the fabled eight-bar IBM Corp. logo to maintain continuity in market perceptions.  It seemed the perfect plan.

Lenovo’s march to dominance stalled quickly. In the first two years following the acquisition, Lenovo sales slumped and it looked as though HP and Dell would remain dominant in the North America and global markets. Lenovo responded by dumping its branding relationship with IBM, focusing on sales in emerging markets and working the channel in developed markets with attractive margins and promotions.

The larger question is whether the PC is relevant at all. The second quarter numbers are telling: They exceed the projected 8 percent decline in PC sales for 2013 and the total 8.5 percent decline in PC sales in 2012. Given the shift to mobile devices and the utility life of legacy equipment, it seems as though PC sales are destined to slump. From a vendor and reseller perspective, PCs have long lost their value as commoditization has held these devices in its grip for the better part of the last decade.

A lot can be said for the lowly PC. The entire proxy fight for control of Dell Inc. between founder Michael Dell and advocate investor Carl Icahn is over the value of PCs. Icahn believes there’s still a lot of life left in PCs and thinks Dell shouldn’t be so quick to shift its priorities to other technologies. While Dell has made significant investments in cloud computing, storage, networking and security, 70 percent of its revenue continues to come from PC sales.

Lenovo, too, sees life in the PC market, particularly in emerging markets. In developing economies around the world, PC adoption rates remain relatively low. That creates an opportunity to expand revenue and global market share. But Lenovo isn’t placing all its bets on PCs. It’s growing its smartphone market share in China, and has embarked on storage and servers through partnerships with EMC Corp.

Intel, which supplies most of the processors powering PCs, also sees a PC renaissance coming, particularly driven by ultrabooks, convertible PCs (PCs that have tablet qualities) and all-in-one PCs. Intel believes 500 million PCs are poised for refresh because they don’t have touch-interface capabilities and flexibility of the new generation of devices.

Microsoft Corp. vis taking a lot of heat for the PC slump. PC manufacturers and critics say Windows 8 failed to ignite a buying spree because it’s too radical a redesign from previous iterations. Earlier this month, Microsoft unveiled Windows 8.1, which reintroduces the “Start” button and other features to make the operating system more familiar to legacy users.

Just how realistic a PC renaissance is remains an open issue. PC sales are struggling against smartphones and tablets. However, even these handheld devices are showing signs of market fatigue. Samsung Electronics Co., BlackBerry and HTC missed their quarterly sales targets for smartphones, and Apple Inc. — maker of the vaunted iPhone — is reportedly cutting its orders from manufacturing partners by 20 percent.