Lenovo finds success in cheap PCs for the home

Lenovo finds success in cheap PCs for the home

Lenovo has found a booming market for desktop PCs in China's small cities and rural townships.

One year after Lenovo Group introduced its Yuanmeng line of PCs, demand for the cheap desktop systems in China's smaller cities and rural townships has never been stronger.

Yuanmeng -- which means "making dreams come true" in Chinese -- is a line of low-cost PCs largely based on processors from Advanced Micro Devices (AMD). The computers are priced starting from around 2,999 renminbi (US$370), with most customers opting for models that come in at close to 4,000 renminbi, said Lu Yan, vice president of marketing and product development at Lenovo China.

These aren't stripped-down systems. A Yuanmeng model now on sale for 4,299 renminbi offers an AMD Sempron 2500+ 64-bit processor, 256MB of DDR (Double Data Rate) DRAM (Dynamic RAM), an 80GB hard disk, an NVidia. GeForce FX5200-based graphics card with 128MB of RAM, and a 17-inch flat-panel monitor.

While relatively cheap, the Yuanmeng line's prices still represent almost the entire annual income for many households in rural China. So, Lenovo is marketing the systems to parents as an educational tool that can help guarantee a brighter future for their children. That's an effective pitch in a country where most families are officially restricted to having only one child and parents are willing to invest heavily in education.

"In China, all parents want their children to become capable, to grow up to become a great man," Lu said. "They are willing to spend a lot of money to do that."

Lenovo -- which has long been China's largest PC maker -- launched the Yuanmeng line in 2004 after an analysis of the Chinese PC market revealed three trends: the rapid growth of income among residents in small towns and cities, demand for notebooks is soaring in China's major cities, and large enterprises are spending more on IT, Lu said.

For Lenovo, the income growth in China's smaller cities was seen as an opportunity to expand sales of its desktop PCs into these previously untapped markets. That bet has paid off. While desktop sales have remained largely flat in China's major cities, growing by just 2 percent to 3 percent, sales in the smaller cities and rural townships have increased by 30 percent to 40 percent over the last year, Lu said, citing figures from market researcher IDC.

As a result, Yuanmeng PCs now account for 70 percent of all consumer desktops sold by Lenovo, Lu said.

Yuanmeng's success has been critical for Lenovo. The company had been losing market share in China prior to the introduction of the Yuanmeng and these PCs have helped turn things around, said Helen Lau, an analyst at Sun Hung Kai Investment Services, in Hong Kong.

"I am upbeat about the Yuanmeng series, because it helps Lenovo gain more market share and hence lets Lenovo enjoy economies of scale," Lau said.

The Yuanmeng line will continue to play an important role in Lenovo's PC strategy. Over time, the company will likely be able to convince current Yuanmeng users to upgrade to high-end desktop PCs or notebooks, Lau said. In addition, the success of Yuanmeng in China's rural areas gives the company a blueprint for tapping PC demand in other emerging markets, such as India, Russia and Brazil, she said.

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