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Lenovo Books 10% PC Market Share

Strong sales mask the company's low profit margins in the second quarter.

Lenovo CEO Yang Yuangqing was ecstatic when industry statistics revealed that his company achieved a double-digit share of the global PC market for the first time. But strong sales mask problems the Chinese company has with low profit margins.

International Data Corporation statistics show that Lenovo shipments were 10.2% of the global market total in the second quarter, a rise of 1.2 percentage points from the previous quarter and a remarkable year-on-year increase of 47.3%, well beyond the industry's average increase of 22%.

Two U.S. companies, Hewlett-Packard and Dell, placed first and second at 18.1% and 13%, while Taiwan's Acer was third at 12.6%. Lenovo was the only manufacturer in the top four to beat the industry's average increase.

Another market research company, Gartner, listed Lenovo as reaching a 10% share of the second-quarter market.

Yang attributed Lenovo's success to an effective strategy ever since Liu Chuanzhi returned as chairman at the beginning of last year. Liu likes to speak of Lenovo following a "two-fisted strategy" that consists of one fist maintaining strength with China, large customers, and mature markets, and the other fist being used to make a push in consumer and less-developed markets.

For the company to achieve true financial success, however, it will need to deal with the fact that it earned a net profit of just $129 million on $16.6 billion in revenue for the last financial year. Meanwhile, its profit margin was just 0.78%, much lower than that of HP.

To try to improve its finances, president and COO Rory Read said Lenovo is working hard to lower costs and increase production capacity. Last year it raised production by 1 million computers, and next month it plans to announce details for further expansion.

But perhaps most important for Lenovo will be the success of its mobile Internet strategy. By making itself a major player in China's fast-growing mobile Internet market, Lenovo hopes to replicate the success that Apple has seen in the United States.

Yang has even said that Lenovo's success in the mobile Internet market will determine whether it lives or dies.

"Lenovo has high hopes for China's mobile Internet. China's 3G network infrastructure is already well established. Now it's just missing a car that can run on the highway, and this is the reason why Lenovo has launched the LePhone and other products," Yang said. "We're determined to become the leading enterprise in this market... We want to offer more products to Chinese users."

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