Lenovo's purchase of Medion confuses analysts

Lenovo’s acquisition of a German electronics outfit has split the legions of strokers of beards and people in the know, whose job it is to comment about such things.

IDC has said that the acquisition of wholesaler Medion, is a great addition for Lenovo “which has been looking at entering the consumer market for some time, while Gartner has said the move is “strange”.

Lenovo is confident that it’s making the right moves.  But then again your dad was when it was dancing at the school disco.  It’s claiming it’s new purchase, which set it back around $340 million, will help boost its market share in western Europe by seven percent. In fact it’s so sure of this that it’s already looking for similar companies to throw some cash at.

IDC has said the move by the PC company is a good one. Eszter Morvay, research manager
of EMEA personal computing at the analyst company said this was because Medion  had a solid presence across the Western European consumer PC market.

She said it ranked tenth in 2010 with a three percent market share and and  came in ninth place in  the first quarter of 2011 with a four percent market share. In comparison Lenovo only had a 1.6 percent market share in the Western European consumer market in 2010 and only scooped 0.5 percent in the first quarter of this year.

“The acquisition is a great addition for Lenovo which has been looking at entering the consumer market for some time, and after failing to purchase Packard Bell, they took a cautious approach in entering the market,” she told Techeye.

“So far it has made the most significant investments in Germany, and also expanding in the UK.”

She said that the Medion acquisition would give Lenovo a “broader product portfolio, including several other consumer electronics, not just PCs, and of course it will contribute to the expansion of the available route-to-markets to Lenovo.”

She added that it would also help the vendor to gain more economies of scale, which should help with price negotiations and allow the vendor to be even more competitive.

However she pointed out that over 60 percent of Medion’s shipments are sold in Germany. Outside of the country the vendor was strong in Austria and Belgium, “but not really in the other countries”.

While it has a strong local market, it is traditionally difficult for a German outfit to get Lebensraum in other European countries, like Lenovo wants.

“Medion is mostly associated with the cheap food-retailer Aldi, where most of the products are sold, however in key countries such as Germany, Medion is also present in mainstream retailers, such as Media Market as well as online through etailers. Managing a multi-brand product portfolio is certainly going to be a challenge, as well as to expand in countries with small footprint of both Medion and Lenovo,” she added.

Her warnings were heeded by Ranjit Atwal a research director at Gartner, who told Techeye that the move was a “bit of a strange one.”

“I’m not sure what it is trying to do,” he said, pointing out that essentially Lenovo was a PC company.

“It’s not established in the wholesale area so not sure how it helps them or how it helps get their products to market. Maybe it thinks it will help in securing some channels. It’s strange that they would do this.

“It could signal that this move is a route into a market that they are struggling in,” he said.

He also shed some light on the rumour that Lenovo had moved to buy MSI, which has been buzzing around Computex telling us: “It looks like Lenovo might be wanting to conquer and manufacture and perhaps secure its own supply chain.

“Maybe it wants to move everything in house. Previously PC manufacturers have been reliant on outside supply chains, and now Lenovo wants to build its own production house. It will become more interesting as a brand as this could mean that the company could bring out products completely different to the ones offered by others as a result of this.”

Only time will tell exactly what’s going on.