Lenovo Buys Digibras In Latin American Strategy

Lenovo Buys Digibras In Latin American Strategy

A Big Market To Play For
Brazil - PC And TV Set Sales, 2009-2016

Lenovo Group has agreed to buy Brazilian consumer electronics manufacturer Digibras for approximately BRL300mn (US$147mn). The deal will significantly augment Lenovo's manufacturing and sales , and distribution footprints in Brazil and deepen its reach into what is already one of the fastest-growing markets for consumer electronics in the world. With BMI forecasting sharp increases in sales of personal computers, digital TV sets and smartphones to Brazilian consumers, we believe Lenovo's decision to aggressively expand in this low-margin, high-income market will only enhance its position as a key player on the global consumer electronics stage.

Privately-owned Digibras manufactures CCE-branded PCs, TV sets and smartphones at seven factories across Brazil and reported turnover of BRL1.6bn in 2011. According to Lenovo, the company shipped 805,000 PCs, 597,000 LCD TV sets and 119,000 smartphones in 2011, y-o-y increases of 20.9%, 159.6% and 1,222.2%, respectively. BMI estimates that 15.07mn PCs were sold in Brazil in 2011, alongside 5.75mn LCD TV sets and 63.6mn handsets, suggesting that Digibras accounted for 5.3% of the PC market and 10.4% of the LCD TV market in 2011.

China-based Lenovo believes the deal will give it a stronger market position, more comprehensive product offerings, enhanced brand awareness and a larger scale of operation and presence in Brazil. The company recently announced pla n s to build a US$30mn PC manufacturing facility in São Paulo, partly to capitalise on the large PC market in Brazil, but also to take advantage of government subsidies and tax benefits from operating its regional hub operations from the country. Lenovo is keen to raise i ts profile across Latin America and sees Brazil as the perfect springboard for its regional expansion strategy. The company is vying with market leader Hewlett-Packard (HP) for dominance of the global PC market. Market research firm IDC believes HP leads with 15.5% of the market, but Lenovo is close behind with 14.9%. A significantly enhanced footprint in Latin America should help Lenovo overtake its rival much sooner than previously forecast.

Although the traditional PC market has lost momentum lately, as smartphones and tablet computers displace bulkier notebook computers in consumers' affections, the relatively untapped enterprise and government agencies markets still offer considerable growth prospects, as more powerful multifunctional products are needed at all levels. As a local company, Digibras has been able to win lucrative supply agreements with government agencies and educational institutions in Brazil, accounting for 15% of sales and 12.2% of the market in 2011. This will benefit Lenovo which, besides accounting for 12% of sales and 7.5% of the market, also accounted for 17.1% of the market for large enterprise PC sales in 2011.

Combined PC Segment Share In Brazil
(% of units, 2011)

The consumer and small - and medium - sized business markets are much more competitive, with rivals such as Asus , Acer , Dell and HP all vying for attention even as consumers turn to less powerful, but more affordable, handheld devices such as tablets and smartphones. By manufacturing locally, Lenovo will be able to contain its production, marketing and distribution costs ; and ultimately undercut foreign brands in terms of pricing. However, its biggest rival in Brazil is likely to be Positivo Informá tica , a manufacturer of low-cost PCs , which enjoys considerable support from the government owing to its focus on low-income socio-economic groups as well as the educational sector.

This article is tagged to:
Sector: Consumer Electronics
Geography: Brazil, Brazil, China, United States, Brazil, Brazil

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