Len­ovo set to hike

Com­po­nent im­ports from South Korea, US and Ja­pan may be­come ex­pen­sive

China Daily (Canada) - - FRONT PAGE - By GAO YUAN gaoyuan@chi­nadaily.com.cn

The yuan’s de­pre­ci­a­tion is forc­ing lo­cal elec­tron­ics mak­ers to lift their prod­uct prices to off­set the ris­ing costs of im­ported com­po­nents from the US, Ja­pan and South Korea.

The yuan’s de­pre­ci­a­tion is forc­ing lo­cal elec­tron­ics mak­ers to lift their prod­uct prices to off­set the ris­ing costs of im­ported com­po­nents, ac­cord­ing to a re­port on the tech­nol­ogy web­site Digitimes, cit­ing up­stream sup­pli­ers.

Len­ovo Group Ltd, the world’s big­gest per­sonal com­puter maker, could even raise the prices of some prod­ucts sold in China later this month, said Digitimes. Acer Corp and Asustek Com­puter Inc too are likely to lift their prices early Septem­ber.

The com­pa­nies re­fused to com­ment on the re­port on Wed­nes­day.

The yuan’s cen­tral par­ity rate against the US dol­lar dropped by 1.86 per­cent on Aug 11 and by a fur­ther 1.6 per­cent the fol­low­ing day, the steep­est falls since 2005.

Although a cheaper yuan is likely to spurPC­ex­ports, com­pa­nies such asLen­ovo are still faced with pay­ing for­eign sup­pli­ers for com­po­nents in­clud­ing bat­ter­ies, pro­ces­sors and liq­uid crys­tal dis­plays.

Selling prod­ucts built us­ing parts im­ported from the United States, South Korea and Ja­pan, for in­stance, is likely to add sig­nif­i­cant costs to Chi­nese com­pa­nies.

Len­ovo’s op­er­at­ing mar­gins in China have al­ready fallen 0.7 of a per­cent­age point in the sec­ond quar­ter, to 4.8 per­cent, it said in its most-re­cent an­nounce­ment.

China ac­counted for onethird of Len­ovo’s to­tal $10.7 bil­lion sales in the quar­ter ended June, and PC sales were a ma­jor con­trib­u­tor to prof­its.

The com­pany did not dis­close how much more it was pay­ing for im­ported parts, but in­dus­try an­a­lysts said they would not be sur­prised if it did within its next set of re­sults.

Gene Cao, from For­rester Re­search Inc, said Len­ovo has al­ready been strug­gling to at­tract new­cus­tomers over the past two to three years.

He said, how­ever, the Chi­nese firm may not be fac­ing im­me­di­ate cost in­creases from some for­eign sup­pli­ers be­cause many com­po­nents were or­dered at last year’s prices, and that pos­si­ble yuan de­pre­ci­a­tion could also have been fac­tored into its op­er­a­tional pro­jec­tions.

One se­nior source within Len­ovo’s PC mar­ket­ing depart­ment told China Daily that price hikes are now “very much on the ta­ble, es­pe­cially as top ex­ec­u­tives are aim­ing at a sta­ble but more prof­itable PC busi­ness to sup­port other trou­bled units, such as the mo­bile busi­ness group”.

Ear­lier this month, the com­pany ac­knowl­edged the re­cent ex­change rate changes had been hit­ting busi­ness.

Cur­rency fluc­tu­a­tions, it said, were one of the ma­jor causes for its worse-than-ex­pected smart­phone sales in Brazil and other Latin Amer­i­can economies.

Slug­gish global de­mand for PCs and poor sales of Len­ovo smart­phones were blamed for the com­pany’s 51 per­cent year-on-year de­cline in net in­come in the sec­ond quar­ter of the year.

Chief Ex­ec­u­tive Yang Yuanqing sub­se­quently an­nounced it was ax­ing around 3,200 staff to bring down op­er­at­ing costs.

Premier Li Ke­qiang said ear­lier this week the ex­change rate will be kept “ba­si­cally sta­ble at an adap­tive and equi­lib­rium level”.

“Li’s com­ments will of­fer Len­ovo great com­fort,” said Cao from For­rester.

LIU JUN­FENG / FOR CHINA DAILY

A Len­ovo Group Ltd store in Yichang, Hubei province. The elec­tron­ics gi­ant is plan­ning to raise PC prices to off­set ris­ing costs due to the weak­en­ing yuan.

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