So far as anyone knows, the late Steve Jobs, high-tech guru that he was, never wrote a coulda-been bestseller called “The Apple Way.” Nor Bill Gates “The Microsoft Way.” Nor Michael Dell “The Dell Way.”
But Lenovo, the Beijing-based company known for its PC laptops and smartphones, may just have enough corporate hubris to match its $6.7 billion market capitalization. It has a book out called “The Lenovo Way,” a 2014 chronicle of how its management methods have burnished a global workforce “for optimal performance.”
Optimal performance in the investment world is another story, though.
And as an over-the-counter stock, Lenovo stock has slumped a staggering 56 percent over the last 12 months, trading at $12 per share. That might not seem to compute, given that Lenovo shipped more personal computers in the last three months of 2015 than any other company — including its Taiwanese rival, AsusTek Computer, more commonly known as Asus.
Asus finished fourth in the fourth quarter, shipping less than half as many units as Lenovo. It also has roughly 40 percent of Lenovo’s market share: 7.9 percent versus 20.3 percent, according to Gartner, a Connecticut company that tracks the high-tech industry.
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Yet Asus’ market share grew 5 percent over the same quarter in 2014, which may explain why it’s fared better. With industry-wide sales down 8 percent in 2015 compared to 2014, Asus has taken less of a hit over the last year. Trading on the Taiwan stock exchange, it’s off 13 percent and its shares are priced at $8.25.
Much of the drop came after June 13, when Asus released second-quarter guidance that its brand revenue would fall short of previous projections, citing weaker PC demand and lower smartphone average selling prices.
But just a month previous, Lenovo shocked shareholders by reporting its first loss in six years. Aside from that industry-wide PC sales lag, Lenovo finds itself in a bind following its 2014 acquisition of Motorola’s smartphone portfolio from Alphabet (ticker: GOOG, GOOGL) for $2.91 billion.
At the time, Lenovo trumpeted it as another corporate coup. In a news release announcing the Motorola deal, it reminded anyone who would listen that “in 2005 [Lenovo] acquired IBM’s PC business and its legendary PC brand.”
Yet this was curious PR, to say the least. If International Business Machines Corp. (IBM) and Motorola had anything in common, both ruled the roost as pioneers in PCs and smartphones respectively — yet squandered the lead by sitting on their digital butts while companies such as Apple (AAPL) electrified the marketplace with ingenious innovations.
That’s led critics to question the Motorola deal. Harshly. And let’s face it: Alphabet is a tough company to bet against. If they’re selling off some techie real estate, chances are excellent they know something the rest of us don’t.
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Indeed, Gartner projects that worldwide smartphone sales will grow only 7 percent this year — and that’s for all companies. It marks less than half the 14.4 percent increase last year and just a tenth of the record 73 percent jump in 2010.
Meanwhile, here’s how things have worked out: Lenovo’s smartphone shipments fell by a third in the first three months of 2016 compared to the same time last year. The thud was not unlike a crummy old flip phone hitting the bottom of a cardboard box just before the big garage sale.
Or worse. Writing in the tech publication The Verge, Vlad Savov says, “It’s time to admit that Lenovo’s Motorola takeover is mirroring HP’s disastrous acquisition of Palm.” Motorola, he added, “seems to have lost its competitive edge, dulled by the grind of Lenovo’s assimilation.”
Not even Lenovo insiders have rejected those contentions outright. Surveying the company’s terrible performance for the fiscal year ending March 31, Chief Executive Yang Yuanqing put it this way: “These results show integration efforts did not meet expectations.”
“To be fair to Lenovo, there are still some bright spots,” says Christopher Ma, director of the Roland George Investments Institute at Stetson University. “Lenovo is likely to push again into China, the U.S., and the Asia Pacific, led by India, which has been a growth driver for Lenovo smartphones.”
Then again, India is also where Apple is betting heavily, after reporting its first-ever drop in iPhone sales during the first quarter of 2016 — off 16 percent from the same quarter in 2015. More than two-thirds of Apple’s profits stem from the iPhone, so don’t expect company executives to sit on the banks of the Ganges while Lenovo chases down all those new customers in Mumbai.
True, Asus also has a stake in the same saturated cell phone market and is also betting on increasing demand in India. Yet if it has any advantage in the long run, it could be this: “Asus is the leading gaming PC maker for gamers who want specialized, high-powered rigs,” Ma says.
“Looking at the stock performances of Asus and Lenovo, it’s clear that if being forced to pick between the two stocks, Asus is the better option by all major metrics,” says Steve Gormley, founder of Seventh Point, a California-based private equity fund. “Lenovo stock has shifted downward, whereas Asus stock has oscillated around a fair level of competitiveness — though it shouldn’t be considered a top performer.”
Then again, it isn’t a cellar-dweller, either.
“Although Lenovo stock is at a five-year low and has significantly underperformed Asus stock in recent years, that doesn’t automatically mean it’s a good buy,” Ma says. “Lenovo’s main corporate server business is still more adversely exposed to the sunset PC industry, sluggish global economic growth and currency headwinds.”
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“Between the two,” he says, “we’d rather bet on ‘gamers’ than ‘servers.'”
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Stock Market Showdown: Lenovo vs. AsusTek originally appeared on usnews.com
