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Lenovo plans plants in inland to reduce costs

2010-07-16 10:26

Lenovo plans plants in inland to reduce costs

A deliveryman unloads Lenovo products at a computer market in Beijing. [Doug Kanter / Bloomberg]

SHANGHAI - Chinese computer maker Lenovo Group said on Thursday that it is considering expanding its manufacturing capacity in western China in order to meet rebounding market demand and further cut costs.

Rory Read, president and chief operating officer of the world's fourth-largest computer vendor, said the company is planning to build more factories in inland regions, as it has witnessed sustained business growth.

"Our strategy is to increase our worldwide market share significantly. We are going to need manufacturing capacity in eastern provinces as well as in the west," he said.

Lenovo has four factories in China, in Beijing, Shanghai, Shenzhen and Huizhou, Guangdong province.

But a series of suicides at Foxconn's Shenzhen plant and strikes at Japanese automaker Honda's domestic suppliers in Guangdong province earlier this year have significantly boosted manufacturing costs in coastal regions.

That has put great pressure on companies that have most of their manufacturing operations in the region.

Read refused to comment on the impact of surging manufacturing cost in eastern China on Lenovo, only noting that capacity expansion was driven mainly by Lenovo's rapid growth rate both in China and globally.

But Yang Yuanqing, chief executive of Lenovo, said on Thursday that the company aims to significantly reduce costs in the next 12 to 24 months.

According to latest figures from research firm International Data Corporation (IDC), Lenovo's global shipments increased 47.3 percent in the second quarter of this year, boosting its market share to 10.7 percent and shortening the gap with Hewlett-Packard (HP), Dell and Acer.

Yang said the company has seen a marked recovery in both developing and mature markets during the past quarters. But the 46-year-old executive said he is still very cautious given economic uncertainties such as the European debt crisis and the Chinese government's recent efforts to curb surging real estate prices.

According to IDC, global PC shipments rose 22 percent in the second quarter, a sign that consumer demand is picking up amid lingering concerns about the pace of the economic recovery.

"The PC market remains robust and is recovering, despite challenges to the broader economic recovery, such as slow job growth and a more conservative outlook in Europe and the Asia-Pacific," said IDC analyst Jay Chou in a statement.

Lenovo's core business was severely impacted by the global financial crisis, as corporate customers reduced IT spending to cut costs.

But the company's business has been on the rise since November last year, as robust demand from emerging markets and a series of cost-saving measures helped offset declining sales in developed markets.

In May, Lenovo launched an Android-based smartphone called Lephone in China in order to ride on China's booming mobile Internet market. The company said it aims to sell more than 1 million Lephones within 12 months.

Yang said on Thursday he is optimistic that Lenovo could surpass average market growth in the next few years.

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