LENOVO GROUP LIMITED –

2013
STRATEGIC MANAGEMENT
SUPERVISOR: DR WASEEM BARKAT

GROUP MEMBERS
MR ARSHID ALI, MR FAISAL KHALIL, MISS FARHANA, MR IRSHAD NIZAR, MISS
MAHJABEEN ASLAM, MR MUBEEN AHMED, MR OSAMA FIDA

DATE: 27 NOVEMBER 2023

Table of Contents
ABSTRACT.................................................................................................................................................. 2
Lenovo's history: ........................................................................................................................................... 2
Vision assertion............................................................................................................................................. 4
Mission Statement Proposal .......................................................................................................................... 4
External Audit Opportunities ........................................................................................................................ 5
Threats .......................................................................................................................................................... 6
Competitive Profile Matrix (CPM) ............................................................................................................... 7
External factor Evaluation Matrix (EFE) ...................................................................................................... 8
Internal Audit .............................................................................................................................................. 10
Strengths ................................................................................................................................................. 10
Weaknesses ............................................................................................................................................. 10
Financial analysis ratio ............................................................................................................................... 11
Net worth analysis in(M) ............................................................................................................................ 13
Internal factor evaluation matrix ................................................................................................................. 14
SWOT Analysis .......................................................................................................................................... 16
SO Strategies........................................................................................................................................... 16
WO Methods.......................................................................................................................................... 16
ST Methods ............................................................................................................................................. 16
WT Methods ........................................................................................................................................... 17
ST Strategies ........................................................................................................................................... 17
WT Strategies.......................................................................................................................................... 17
SPACE Matrix ............................................................................................................................................ 18
Grand Strategy Matrix ................................................................................................................................ 19
The Internal-External (IE) Matrix ............................................................................................................ 20
BCG Matrix ................................................................................................................................................ 21
QSPM.......................................................................................................................................................... 22
Recommendations ....................................................................................................................................... 26
EPS/EBIT Analysis..................................................................................................................................... 27
Conclusion .................................................................................................................................................. 29

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 Lenovo Group Limited – 2013
Forest R. David

ABSTRACT

Lenovo is a Chinese firm based in Beijing. It develops, produces, and sells electronic storage,
workstations, servers, personal computers, information technology management software, and
other linked things and services. Lenovo is the world's second-largest PC vendor (behind HP),
providing desktops and laptops under the Think Centre and ThinkPad brands. Lenovo employs
26,300 people and sells directly to corporations and customers, as well as through internet sales,
company-owned stores, chain retailers, and large technology distributors and partners.

On September 30, 2013, Lenovo introduced four new all-in-one (AIO) desktop PCs at Research
Triangle Park, North Carolina. Among them is the super-widescreen Lenovo B750, which creates
the world's first 29-inch 21:9 display. According to the most current IDC statistics, Lenovo leads
both the worldwide AIO market overall and the global consumer AIO market. The four new
models have gorgeous IPS panels, including three B-series PCs and the small, space-saving
Lenovo A530.

Lenovo's history:

Lenovo Group Limited, known as Lenovo, is a Chinese multinational technology firm. It was
formed in Hong Kong and presently operates from three locations: a Singapore operations center,
an operational headquarters in Morrisville, North Carolina, and a worldwide headquarters in
Beijing, China. As of January, the firm was the world's greatest per-computer vendor in terms of
unit sales. Personal computers, tablet computers, smartphones, workstations, servers,
supercomputers, electronic storage devices, IT management software, and smart televisions are all
created, developed, manufactured, and marketed by the corporation. 2021. It also sells the Idea
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Pad, Yoga, and Legion consumer laptop brands, as well as the ThinkPad and Think Book business
laptop lines and the Idea Center and Think Center desktop computer lines. Lenovo distributes its
goods in about 180 countries and has businesses in over 60 of them. It has research centers in
Beijing, Chengdu, Yamato (Kanagawa Prefecture, Japan), Shanghai, Shenzhen, and Morrisville
(North Carolina, US), in addition to Lenovo NEC Holdings, a joint venture with NEC that makes
personal computers for the Japanese market. Lenovo, originally known as Legend, was formed in
Beijing in November 1984 and became a Hong Kong firm in 1988. After acquiring IBM's personal
computer business in 2005, Lenovo agreed to buy the company's Intel-based server division in
2014. Lenovo was the leading smartphone provider in mainland China in 2014, having previously
entered the market in 2012. In 2014, Lenovo purchased Motorola Mobility from Google. In 2017,
Lenovo purchased Fujitsu's personal computer division.

Lenovo is a component of the Hang Seng China Affiliated Corporations Index and is listed on the
Hong Kong Stock Exchange. It is known as a "red chip" stock. Throughout the first twenty years
of the company's existence, the English moniker "Legend" was employed. Yang Yeaning opted to
forsake the Legend English brand in 2002 in order to expand into markets outside of China. It was
difficult to register "Legend" in many countries outside of China as it was already in use by various
companies around the world, whose goods and services (in the United States, for example) would
comprise both technology and non-technological realms of industry and trade. In April 2003, the
company's new English name, "Lenovo," was publicly unveiled. Large billboards and primetime
television ads were employed to promote the news. Lenovo spent 18 million RMB on an eight-
week television advertising campaign. On the billboards, the Lenovo insignia was put against a
blue sky, combined with the statement, "Transcendence depends on how you think." By the end
of 2003, Lenovo had rebranded for a total of 200 million RMB.

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Vision assertion

"To create personal devices that more people are inspired to own, a culture that more people aspire
to join, and an enduring, trusted business that is well respected worldwide," is the true aim of the
firm.

Mission Statement Proposal

Lenovo is a firm that is committed to its clients by supplying high-quality PCs and mobile Internet
devices. Product innovation (4), an extraordinarily efficient global supply chain (7), and
outstanding ethical standards (6) drive the company's business strategy. Lenovo is able to deliver
the most cutting-edge technology (4) to customers internationally (3) thanks to the inventive and
hard work of our people (5) while we limit our environmental impact (8) and expand financially
for our shareholders (5).

1. Customers

2. Products and services

3. Shopping malls

4. technology

5. Concerns regarding survival, development, and profitability

6, the philosophy

7. Perception of oneself;

8. Concerns regarding public perception

9. Take care of the personnel

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External Audit Opportunities

1. The differentiation of main components, such as batteries, screens, and storage, is one of the
most essential qualities of a phone.

2. HP suffered a $12.6 billion loss in 2012.

3. The smartphone is still in its infancy in many emerging economies.

4. Extending free WiFi coverage internationally.

5. Apple does not aggressively manufacture items and services for international corporate clients,
preferring to focus on consumers.

6. Apple's global service and support for some of its gadgets is uneven.

7. Users favor Android-based operating systems over Windows-based operating systems.

8. The number of smartphones provided worldwide surged by 39% in 2012, according to

International Data Corporation. 9. In the United States, numerous smartphone carriers offer
reduced phones to consumers who sign two-year contracts. 10. China is the world's largest PC and
mobile phone market. Hazards 1. It could be difficult to rely on suppliers to deliver the needed
amount of things at times. 2. Apple, Dell, HP, Toshiba, and Fujitsu had better sales numbers in
2012 and 2013 than Lenovo. 3. Apple and Samsung dominate the smartphone sector, accounting
for 80% of the market. 4. The PC market is seeing a slump. 5. Apple had a 74 percent inventory
turnover in 2012. 6. Price wars are breaking out in the sector.

7. Windows-based mobile operating systems have not grown as popular as those powered by Apple
and Google.

8. Microsoft delivers free Think Vantage software from Lenovo.

9. Lenovo is also concerned about ZTE Corp., a Chinese corporation that hopes to be one of the
top three smartphone brands in the world.

10. More organizations are contemplating acquiring Mac laptops for all or a portion of their
international operations.

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Threats
1. Cannot depend on supplies provided by suppliers at a specific quantity.
2. In 2012 & 2013 other competitive firms got higher sales.
3. Eighty percent of market share is captures by Apple and Samsung.
4. Market of Personal Computers in Decline.
5. There was seventy-four inventory turnover of Apple in 2012.
6. There are chances of price wars.
7. Operating system of Windows is not as popular for mobiles as Apple and Google OS.
8. Microsoft offers similar software as compare to Lenovo for free.
9. One of Chinas ZTE Corp is in eyes of Lenovo which aims to be among world’s top
smartphone brands.
10.Increased number of firms are interested to buy Mac computers.

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Competitive Profile Matrix (CPM)

Weight Apple % Dell % Lenovo %

Critical Factors of Success Rating/Scores Rating/Scores Rating/Scores

Stock Turnover 6 1/6 4/24 2/12

Return on Asset 8 2/16 4/32 1/8

Return on Equity 8 3/24 4/32 2/16

Debt to Equity 4 2/8 4/16 3/12

Rapid Ratio 4 2/8 4/16 3/12

Market Share Phones 12 2/24 4/48 1/12

Market Share PCs 6 3/18 2/12 4/24

Loyalty of Customers 10 2/20 4/40 3/30

Quality of Product 10 3/30 4/40 2/20

Geographic Expansion 10 2/20 4/40 3/30

Price competition 10 3/30 2/20 4/40

Book value of Shareholder 12 1/12 4/48 2/24

TOTALS 1 2.16 3.68 2.40

Lenovo company is growing very fast but there are some factors that lag both the competitors, so
the company need to move more resources towards the mobile phones to grow further and capture
a greater share of market.

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External factor Evaluation Matrix (EFE)

Opportunities Weight % Rating Weighted

% Score %

New features of phones like storage or battery 4 4 16

In year 2012 HP Corp lost 12.6 Billion US Dollars 1 2 2

Mobile phones are still in growth phase 4 2 8

Increasing Wi-Fi areas around the world 1 2 2

Apple is focused on consumers but not all company 3 2 6

customers

Apple does not have support on all its services 2 3 6

worldwide

Preferences of customers are changing towards Android 5 4 20

OS system for Windows

Thirty nine percent increase was recorded in mobile 8 2 16

market in 2012

In US firms offer mobile phones after signing a contract 3 1 3

of 2 years

World’s biggest market for smartphones and PCs is 8 3 24

China

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 Threats Weight Rating Weighted
% Score %

Cannot depend on supplies provided by suppliers at a 6 3 18

specific quantity

In 2012 & 2013 other competitive firms got higher sales 9 2 18

Eighty percent of market share is captures by Apple and 9 2 18

Samsung

Market of Personal Computers in Decline 9 2 18

There was seventy four inventory turnover of Apple in 4 2 8

2012

There are chances of price wars 6 3 18

Operating system of Windows is not as popular for 5 4 20

mobiles as Apple and Google OS.

Microsoft offers similar software as compare to Lenovo 4 2 8

for free

One of Chinas ZTE Corp is in eyes of Lenovo which 7 2 14

aims to be among world’s top smartphone brands

Increased number of firms are interested to buy Mac 2 2 4

computers

TOTALS 1 2.47

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Lenovo’s efforts in fixing external issues is not quite good but it is managing itself among two
giant competitors such like Apple and Samsung. The firm aims to locate more resources to the
Smartphone market rather than PC market.

Internal Audit

Strengths
1. Forty-three percent of 2012’s sales came from china which shows a strong sales position.
2. Lenovo is a company that is capturing the market quickly because it increased around 500
million US dollars in its net income from 2010 to 2013.
3. In Wuhan, China Lenovo constructed a building for R&D costing 793 million US dollars.
4. After HP, Lenovo Corp is the second largest PC manufacturer.
5. If we talk about line up, Lenovo is fourth largest in the world.
6. Lenovo is the 2nd largest supplier of mobile phones in china and is now launching its phones
in Russia, Indonesia, Vietnam and Philippines.
7. Lenovo applies both forward and backward integration techniques to cut of cost and
manage supplies efficiently.
8. Lenovo is a Chinese company which manufactures PCs and its 34% revenue comes from
china by 81% sales in China.
9. There is no any smartphone of Lenovo available in Europe.
10. Sales of 6.8 billion US dollars of Lenovo came from Europe, Middle east and Africa in
2013, but surprisingly sales profits were counted just of 24 million US dollars.

Weaknesses
1. Statement of purpose is too short.
2. Divisional by product rather than COO even though divisional by region may be more
advantageous.
3. The markets in Europe, US, and Latin America do not carry Lenovo Smartphones.
4. The business was primarily driven by its smartphones sales in China which increased in 77%
to Dollar 998 Million but only made up 11% of total revenue.
5. Lenovo's mobile Internet and digital home (MIDH) segment accounted for roughly 10% of its
Q3 2013/2012 revenues; this segment was primarily driven by the company's smartphone sales
in China, which increased 77% to $998 million, despite making up only 11% of total revenue.

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6. 6.The Europe, Middle East, and Africa segment recorded sales of $6.8 billion USD in 2013,
but operating profits came in at just $24 million.
7. In 2013, North America's sales of $4,939 million were the lowest of any market that was
served.
8. Apple's inventory turnover was 20 out of 70.
9. The company's net income in 2013 was only $631 million, despite increasing profits.

Financial analysis ratio

LENOVO Industr
Profit margin %
G y
Gross margin 11.59 22.72
Pre-Tax Margin 2.2 -0.8
Net profit margin 1.62 -1.60

Ratios of liquidity
Ratios of debt to equity 0.11 0.64
Existing ratio 1.03 1.12
Rapid ratio 0.77 0.74

Ratios of profitability
Equity return 22.14 -6.80
Asset return 3.25 -1.70
Capital return 19.28 -3.55

Ratios on Efficiency
Income employee 17,757 -23,973
Revenues employee 1.09 Mil 374,574
Turnover of receivable 12.44 6.13
Turnover of stocks 20.24 14.47

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 Turnover of assets 2.03 1.07

In comparison with the industry average, Lenovo is performing well on the majority of financial
ratios. Nonetheless, there is space for improvement in inventory management when contrasted with
Apple's inventory turnover of 75 and quick ratio of 1.55. Furthermore, the company's ROE and ROA
figures significantly underperform those of its samara leading competitors who prioritize
smartphones over PCs.

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Net worth analysis in(M)

Lenovo company worth analysis

Stockholders’ equity $646

Net income $3155

Share price $10407

No of share outstanding $10935

METHOD AVERAGE $5963

Apple corporation worth analysis

Stockholders’ equity $112851

Net income $208665

Share price $493030

No of share outstanding $492975

METHOD AVERAGE $326878

Lenovo is a rapidly growing company but Apple has roughly 50 times the market capitalization
of Lenovo.

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Internal factor evaluation matrix

strength weight rating Weighted

score

Strong sales positioned in china which accounted for 0.08 4 0.27

43% of total sales in 2012

Company that is expanding quickly in 2010 net 0.07 4 0.25

income was $129 million by 2013 it was $631
million

Lenovo has spent $739 million a building a 0.07 4 0.27

manufacturing and research and develop center for
mobile phones in china

Based on volume Lenovo is ranked 4th in global 0.04 3 0.12

market

The national football league declared in July 2012 0.02 3 0.07

that Lenovo has joined the league as its official
laptop and workstation Sponsors.

For a basic price of 300 million reals (USD)148 0.04 3 0.12

million Lenovo purchased the electronic business
CCE based in brazil which sells goods.

Lenovo is the 2nd largest smartphones suppliers in 0.04 3 0.15

china, started offering it’s devices in Vietnam ,
Indonesia and Russia

In year 2013 Lenovo sales in Europe china middle 0.05 4 0.20

east and Africa raised by 17% and 20%

Lenovo follows two strategies safeguard it’s 0.05 3 0.14

commercial worldwide business and it’s Chinese

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 business and 2nd seize the emerging market by
introducing smartphones and tablets etc.

Lenovo used vertical integration as means of 0.05 4 0.20

reducing expenses.

Weaknesses weight rating Weighted

score

Mission statement consist of just one sentences 0.04 1 0.03

Divisional by product rather than COO Even though 0.04 1 0.03

divisional by region may be more advantageous

The markets in Europe US and Latin America do not 0.06 2 0.12

carry Lenovo smart phones

The business was primarily driven by its 0.07 2 0.14

smartphones sales in china which increased in 77%
to $998 million, but only made up 11% of total
revenue

In 2013 Europe, middle east and Africa recorded 0.06 2 0.12

sales of $6.8 billion USD but only generated $24
million in operating profit

In 2013 saw $4939 million in sales in north America 0.04 1 0.04

the last amount of any market served.

20 inventory turnover while apple with over 70 0.05 2 0.10

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Although the company is managing its internal resources effectively, it needs to begin devoting
more resources to smartphones rather than PCs. It's probably necessary to make more of an effort
in the US market as well.

SWOT Analysis

SO Strategies
Spend $600 million to construct a new phone and tablet production plant close to the Wuhan,
China R&D center.
Establish a partnership with AT&T and Verizon in the USA to offer smartphones.
Provide a $21 discount on every phone to a maximum of a million Russian consumers.
Invest in $200 Millions cultivating partnerships with major global corporations provide digital
phones supplies to the staff.

WO Methods
1.Invest $20 million in hiring a COO and restructuring products
2. profit from all PCs sales should go toward research and development of smartphones and
tablets and other generations devices
3. Establish a partnership with Verizon and AT&T in the United States to offer digital phones
Invest $50 million to develop and provide consumers in growing markets with more affordable
products.
ST Methods
1. Invest million $150 Chinese marketing to promote the benefits of Lenovo.
2. Expand vertically. This coordinated method even more to incorporate $500 million in R&D
for battery, displays, and preservation.
3. Use eighty percent profit fund research and development for tablets, smartphones, and other
future gadgets.

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WT Methods
1. Expand from top to bottom coordinated method even more to incorporate $500 million in R&D
battery displays, and preservation.
2. Invest $200 million in creating a high-end phone that will increase profit.
3. Put 81% of profits back into research and development for tablets, smartphones, and other
subsequent-generation gadgets.
4. Sell off every software activity that resemble those provided by Microsoft.

ST Strategies
1. Spend $150 million in ads in China to sell the advantages of Lenovo smartphones over rival
XTE Corp.

2. Further enhance the vertically integrated plan to add batteries, display, and storage for $500
million in R&D.

3. Invest 80% of the income made from PCs into R&D for tablets, smartphones, and next
generation products.

WT Strategies
1. Further enhance the vertically integrated plan to add batteries, display, and storage for $500
million in R&D.

2. Spend $200 million to build top of the line phone for the European market that will provide
higher profit margins.

3. Invest 80% of the income made from PCs into R&D for tablets, smartphones, and future
generation devices.

4. Divest all software actions similar to what Microsoft is supplying for free.

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SPACE Matrix

FP
Conservative Aggressive
7

4 X = 2.0
Y = 0.2
3

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

As Lenovo is positioned in the Aggressive Quadrant of the SPACE Matrix, it is vital that the
business persists in its efforts to expand into Latin America, maintain its vertical integration
techniques, and spend more resources towards smartphones.

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Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

The smartphone market is rapidly growing, but the PC market is not, making it difficult to place
Lenovo inside the Grand. If the firm continues to grow its smartphone business model, especially
in China and then expanding more abroad, the firm should see continued sales growth.

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The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

China

3.0 IV V VI

The
EFE North America
Total Medium
Weighted
Scores APLA

EMEA

2.0 VII VIII IX

Low

1.0

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BCG Matrix
One fundamental technique for analyzing a company's situation with respect to its product line is the
Boston Consulting Group (BCG) Matrix. It assists a business in considering its offerings and determining

STARS
QUESTION MARKS
Stars generate huge profits because of
their big relative market share, but
they also spend a lot of money These units can be developed, maintained,
because of their swift growth rate. In harvested, or sold off; as they don't have a
the case of Lenovo tablets, for strong market position, they don't generate
High
example, they control a sizable much revenue and hence have high net cash
portion of the quickly expanding consumption. Lenovo services are included
market. It is suggested that by in this category.
improving its quality and vigorously
Rate of Market Growth

advertising it, stars should be

mentioned and developed.
DOGS
CASH COWS DOGS: This category includes Lenovo
These products are thought to be smartphones. Dogs don't produce or
consume a lot of money, and they have a
profitable and low-maintenance.
little market share and growth rate.
Low Lenovo laptops and desktop
computers are "extracting" units that
hold and harvest the cash cows,
providing the necessary funds to run
question marks.

High Low

Relative Market Share

which to maintain, which to drop, and which to increase investment on.

Despite all of these factors, as well as development and investment, Lenovo has established a significant
global market share in the context of the high-tech competitive environment.

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QSPM

Opportunities Weight AS TAS AS TAS

(%) (%) (%)

New features of phones like storage or battery 6 0 0 0 0

In year 2012 HP Corp lost 12.6 Billion US Dollars 9 4 36 3 27

Mobile phones are still in growth phase 9 3 27 4 36

Increasing Wi-Fi areas around the world 9 3 27 1 9

Apple is focused on consumers but not all company 4 3 12 2 8

customers

Apple does not have support on all its services 6 0 0 0 0

worldwide

Preferences of customers are changing towards 5 0 0 0 0

Android OS system for Windows

Thirty nine percent increase was recorded in 4 0 0 0 0

mobile market in 2012

In US firms offer mobile phones after signing a 7 4 28 2 14

contract of 2 years

World’s biggest market for smartphones and PCs 2 0 0 0 0

is China

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 Threats Weight AS TAS AS TAS
(%) (%) (%)

Cannot depend on supplies provided by suppliers 4 0 0 0 0

at a specific quantity.

Eighty percent of market share is captures by Apple 1 0 0 0 0

and Samsung.

Market of Personal Computers in Decline 4 4 16 2 8

There was seventy-four inventory turnover of 1 4 4 3 3

Apple in 2012.

There are chances of price wars. 3 3 9 1 3

Operating system of Windows is not as popular for 2 0 0 0 0

mobiles as Apple and Google OS.

Microsoft offers similar software as compare to 5 3 15 4 20

Lenovo for free.

In 2012 & 2013 other competitive firms got higher 8 3 24 4 32

sales

One of Chinas ZTE Corp is in eyes of Lenovo 3 2 6 4 12

which aims to be among world’s top smartphone
brands

Increased number of firms are interested to buy 8 4 32 1 8

Mac computers.

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 Strength Weight AS TAS AS TAS

Strong sales positioned in china which 0.07 4 0.28 1 0.07

accountant for 43% of total sales in 2012

Company that is expending quickly 2010 net 0.06 4 0.24 3 0.18

income was 129 billion dollars by 2013 it was
631 million dollar

Lenovo is spent 739 million dollars a building 0.07 2 0.14 3 0.21

a manufacturing and R/D centers for mobile
phones in china

Based on volume Lenovo has ranked 4th in 0.04 4 0.16 2 0.08

global market

The national football league declared in July 0.02 2 0.04 4 0.08

2012 that Lenovo is joined he league is its
official laptops and work stations sponsors

For basic price of 300 million reals (USD) 138 0.04 0 0.00 0 0.00
million Lenovo purchased the electronic
business CCE based in brazil which sells goods

Lenovo is the 2nd largest smartphones suppliers 0.05 4 0.20 1 0.05

in china

Started offering its devices in Vietnam 0.05 0 0.00 0 0.00

Indonesia and Russia

In years 2013 Lenovo sales in euro[e china 0.05 4 0.20 1 0.05

middle east and Africa raised by 17% and 20%

Lenovo follows two strategies safeguards its 0.05 2 0.10 3 0.15

commercial worlds wide business and its
Chinese business And 2nd seize the emerging
market by introducing smartphone and tablets
etc.

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 weaknesses weight AS TAS AS TAs

Mission statement consist of just one sentence 0.03 0 0.00 0 0.00

No divisional by product whether than COO even though 0.03 0 0.00 0 0.00
divisional by region may be more advantageous

They market in US and Latin America do not carry 0.08 4 0.24 4 0.32
Lenovo smart phones

The business was primarily driven by its smartphone 0.06 0 0.00 0 0.00
sales china was increased in 77% to $998 million but
only made up 11% of total revenue

In 2013 Europe middle east and Africa recorded sales of 0.07 1 0.21 1 0.07
6.8 billion dollars but only generated 24 million dollar in
operating profit

In 2013 saw $4939 million sales in north America the 0.06 4 0.12 4 0.24
last amount of any market served

20 inventory turnover while apple with over 70 0.04 3 0.08 3 0.12

Both strategies should be implemented and even though building the new production plant in
China receives a higher score than securing relationships with Verizon and AT&T in the USA, it
would be wise for Lenovo to first gain a commitment for the USA based telecom giants.

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Recommendations

1. Sell off all software projects that are comparable to the free offerings from Microsoft.
2. Include batteries, screens, and storage in the vertically integrated strategy for an extra $500
million in research and development.
3. . Spend $150 million on Chinese advertising to highlight Lenovo cellphones' benefits over
those of competitor XTE Corp.
4. Invest $50 million in creating and advertising more affordable products to consumers in
underdeveloped economies.
5. Set aside 80% of all PC earnings for research and development of tablets, smartphones, and
other cutting-edge technology.
6. Hire a COO and invest $20 million in reorganizing the products.
7. Invest $200 million in forging relationships with massive global firms so that their staff
members can receive smartphones.
8. Offer a $20 discount per phone to up to one million Russian customers.
9. Establish a smartphone partnership in the US with AT&T and Verizon.
10. Build a new phone and tablet production plant close to the Wuhan, China, R&D facility for a
sum of $600 million.

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EPS/EBIT Analysis

(in millions of $ expect for EPS and Share Price)

Amount Needed: $1,700 million

Stock Price: $21.11
Shares Outstanding: 518
Interest Rate: 4%
Tax Rate: 25%

Equity Financing ($) Financing of Debt ($)

Recession/Moderate/Boom Recession/Moderate/Boom

Earnings 500/800/1200 500/800/1200

before Interest
and Tax

Interest 0/0/0 68/68/68

Earnings 500/800/1200 432/732/1132

before Tax

Tax 125/200/300 108/183/283

Earnings after 375/600/900 324/549/849

Tax

Shares 599/599/599 518/518/518

Earnings Per 0.64/1.1/1.51 0.62/1.05/1.66

Share

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 Equity (60%) Debt (40%)

Recession/Moderate/Boom Recession/Moderate/Boom

Earnings 500/800/1200 500/800/1200

before Interest
and Tax

Interest 27/27/27 41/41/41

Earnings 473/774/1172 459/759/1159

before Tax

Tax 119/193/293 115/190/290

Earnings after 355/580/880 344/569/869

Tax

Shares 566/566/566 550/550/550

Earnings Per 0.63/1.03/1.54 0.64/1.03/1.59

Share

As economic conditions improve, debt financing becomes more and more attractive for Lenovo.
It would require increasing shares outstanding by 16% if financing by equity under any economic
climate.

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Conclusion

In January 2013, Lenovo established its first PC manufacturing plant in the United States in
Whitsitt, North Carolina. The ThinkPad Tablet 2, ThinkPad Helix convertible Ultrabook, and the
compact Think Centre MPs desktop are just a few of the latest Think-branded PCs that are
produced at a 240,000 square foot facility located 10 miles outside of Greensboro. In observance
of the PC production line's launch, Lenovo donated 36 Think Centre Desktops, which were
constructed in Whitsitt, to the Greensboro YMCA for use in youth development and educational
initiatives. Lenovo faces a major challenge as research firm EDC predicted in mid-2013 that global
PC shipments will decline by 7.8 percent in 2013 and an additional 1.2 percent in 2014 due to the
fact that most people only need smartphones and tablets as their "computers." In the first quarter
of 2013, shipments of laptops and desktop computers fell 14% worldwide. However, market
leader HP's market share fell from 17.7 percent to 15.7 percent in the middle of 2013, while
Lenovo's global market share in the PC industry grew to 15.3 percent. Lenovo is the leading PC
manufacturer in the world, holding a 15.7 percent market share, compared to HP's 15.5 percent,
according to Gartner Inc.

Even though Lenovo is perhaps the biggest PC seller in the world, the PC industry is contracting,
therefore CEO Yang Yeaning declared in the middle of 2013 that "smartphones are our new
opportunity." It will be difficult to break into the Apple-Samsung smartphone duopoly, though.
In Wuhan, central China, Lenovo has opened a new $800 million research and development center
to produce tablets and smartphones. Yeaning, the CEO of Lenovo, describes the new approach as
"protect and attack." Lenovo anticipates a 50-million-unit increase in global smartphone sales in
fiscal 2014, which concludes on March 31, 2014, from 30 million units in fiscal 2013, which
concluded on March 31, 2013. Kobe Bryant, a legendary player in the NBA, is Lenovo's main
marketing spokesperson for the K900 smartphone. But in the US, Lenovo has stiff competition
from Apple and Samsung, which in 2012 spent $333 million and $401 million, respectively, on
smartphone advertisements.

According to Yeaning, the CEO of Lenovo, "servers and storage is the business we want to expand
and develop." Rumor has it that the CEO is in discussions with IBM to buy a chunk of their server
business.

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